I am still on board with this outlook for Australia as well. The excellent Michael Wilson at Morgan Stanley.
Coming into this year, the number one investor concern was that everyone seemed to have the same outlook for US equities – a tough firsthalf followed by a strong finish. Views varied on the degree of the drawdown and magnitude of the rebound, but a majority expected a US recession to begin sooner rather than later.Fast forward just one week,and the consensus view has shifted sharply, particularly regarding the recession. Specifically, while more investors are starting to entertain the idea of a soft landing for the economy, many others have pushed the timing of a recession out to the second half of the year. This change is due in part to China’s reopening gaining steam and natural gas prices collapsing in Europe.
While these are valid grounds for investors to modify their views, we think price action has been the main influence. The rally this year has been led by lowquality and heavily shorted stocks. It’s also witnessed a strong move in cyclical stocks relative to defensives. This cyclical rotation in particular is convincing investors that they are missing the bottom and must reposition. Truth be told, it has been a powerful shift, but we also recognize that bear markets have a way of fooling everyone before they’re done. The final stages of the bear market are always the trickiest,and we have been on high alert for such head fakes, like the rally from October to December we anticipated and traded. In bear markets like last year’s, when just about everyone lost money, investors lose confidence.
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