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What three year period from history does the AI-era (2023-2025) most closely resemble? 1994-1997.
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3Fourteen Research
1,293 posts
3Fourteen Research
@3F_Research
The next generation of investment research.
Joined September 2020
- A composite of the average Fed Cycle would cause the following ordering/timing of events: -March = First cut (8 month pause), -June = Recession starts, -October = Market bottom, -Feb 2025 = Earnings bottom This is NOT a prediction - only a tool to understand what is "normal"
- Were the October lows "THE lows" for the S&P 500? We doubt it. Three reasons we believe the ultimate lows are still ahead of us: 1) Typically, forward earnings stabilize and turn higher 3-6 months after a market bottom. Not happening this cycle.
- Based off of a historic composite, here is how the major events of 2023 would unfold: -Fed stops hiking now and pauses for 7 months (Summer 23). -Recession begins around Nov 23. -S&P makes an ultimate low early 24. -Earnings bottom in spring 24. -Recession ends late-summer 24.
- General rules to remember: 1: Equities bottom AFTER a recession has begun...generally ~3-6 months. 2: Equities bottom after Fed is done hiking (87 = exception). 3: Earnings contract around the start of a recession. 4: Multiples compress heading into recessions.
- New report out to 3FR clients: -Absent forward recession, 10% S&P 500 corrections are buying opportunities. -We analyze credits spreads, which are historically benign (i.e. showing no recession risk). -Neg wealth shock is a risk. -April should provide a better re-entry point.
- Since 1950, there have been 48 bear market rallies. Only six have exceeded 13% and only five have exceeded the current rally. If this does, in fact, turn out to be a bear market rally, it will be one of the largest ever.
- Stocks continue to ignore the bond market. The S&P 500 is near 4,000 while Inv Grade credit spreads have blown out (2 basis points below Oct highs). Historically, this combo - IG Spread UP + stocks UP - is a horrible backdrop for forward equity performance.
- New report out to 3FR clients: -The growth scare we predicted is here. -Recession remains unlikely. -Equity weakness still has further to run (likely to run into correction territory). -Stay patient into mid-April.
- Despite a 9% S&P 500 correction, we have yet to see excessive pessimism reflected by ETF positioning. Inverse ETF volume is currently at 42% of total speculative ETF volume. Major bottoms form around 60%...
- The 2-10 yld curve has steepened by 35 bps since July Most of the steepening has been due to the 10-year rising (bear steepener) Bear steepeners are rare and usually occur at two distinct points of the cycle: 1) Heading into recession (inverted YC) 2) New expansion (pos YC)
- For months, the S&P 500 has traded within +/- 10% of fair value. At 4,100, the market is now back to being +10% overvalued based on forward earnings + interest rates. Buying at 4,100 embedded assumptions, either: -Lower rates, -Earnings growth, or -Multiple expansion vs history
- New report out to 3Fourteen clients updating our housing recession model. For the first time since 2020, both multi-family and single-family housing units under construction are falling simultaneously. W/o an uptick in housing activity, construction job losses are coming.
- One year ago, the there was ~$1 trillion in the Treasury's account (TGA). Over the past year, Yellen has spent down the TGA adding ~$800 billion of liquidity to financial markets - offsetting the Fed's Quantitative Tightening program. Chart shows last 12 mo chng in TGA vs SOMA
