Closer To The End Than The Beginning?

From our friends at Heritage Capital Research, here's a pretty good analysis of why we're closer to the end of this downturn than to the beginning?  I thought we could end this first weekend of June on a positive note.  Everyone have a good week.  

Updates from http://www.heritagecapitalresearch.com/ Daily State of the Markets

Closer To The End Than The Beginning? By Dave Moenning on May 24, 2022 09:39 am To be sure, it's a very busy time for anyone managing money in the markets. As such, I'm going to provide an executive summary of what I see happening at this time. Summary Stock market officially in "growth scare" mode. Worries about recession and EPS estimate revisions surging – leading to "risk off" environment. Market Drivers: Last week, earnings reports from WMT, TGT, ROST brought profit margin compression (resulting from inflation, labor costs and supply chain issues) and struggling consumer narratives to the fore. This week brings another earnings-based fear as SNAP warned about the macro environment for online advertising "has deteriorated" faster than expected (vs only a month ago). This adds to multiple contraction/valuation and growth themes that have plagued trading. Market appears to be in process of pricing in lower earnings expectations (consensus estimate levels) and recession potential. Macro concerns being reinforced by this week's dive in bond yields. Positives: Fed's reluctance for 75 bp rate hikes, the pullback in rates, peak inflation and peak hawkishness themes, overall strong consumer (although low end being impacted by inflation) and corporate balance sheets, pickup in buyback activity, and China policy support. Also supportive: oversold conditions, extreme negative sentiment (highest put/call ratio since March 2020), upcoming quarterly rebalancing adjustments, and "time for a bounce/calling bottom" narratives. Negatives: Bear market narrative continues to evolve on back of Fed-led global monetary shift. Last week's focus was on inflation pressures on profit margins, which led to concerns about 2022 consensus earnings estimates. This week it's about systemic risk potential (Bitcoin?) and macro backdrop deterioration (online advertising and recession). Additional concerns include lack of "Fed put," growth/valuation narrative, stagflation fears, China lockdown headwinds, pickup in equity outflows, and earnings misses. Where We Are Now: Some interesting stats from Wall Street analysts worth noting... Deutsche Bank: This is 6th largest non-recession correction in post-WWII era. Including recessions, average decline is -23.9%. Projects low of 3650 (-6.4% from 5.20.22 close). Ned Davis Research: Mean decline for cyclical bear markets w/in secular bull is -22.8% (3703 or -5%). Mean for all bears -30.8 (3319 or -15%) Credit Suisse: 6th time since 1978 S&P has fallen at least 19% but did not enter bear market territory. The following 12 months = big gains in 5/6 of the years. October 1998 & December 2018: +37%, October 1990: 29.1%, October 2011: 32%. But: 3 times Fed easing was catalyst for rebound. Quick Valuation Checks: Refinitiv: S&P 500 forward (12-month) PE: 16.4 v 22 on 12.31.21. Below the 5-year average of 18.6 and the 10-year average of 16.9. NDR: PE multiples have compressed more in this cycle than the average bear market. Truist: Over last 90 days, S&P 500 seen sharpest contraction in forward P/E in past 15 year. 90-day contraction at level below Covid Crash and 2008. Summary: It appears we are dealing with a severe correction/cyclical bear market being driven by the fear of what could happen based on Fed actions and inflation. For me, the bottom line is we are likely closer to end than beginning.