Here we go again. Retail investors and even some bigger players are again afraid of inflation, recession, and ghosts. Media are digging out bears and recycling their stories and narratives, such as Mike Wilson from Morgan Stanley, who has been notoriously predicting a 50% (now only 20%) crash since 2009. Yes, he was right in 2022 when the market shed almost 30%, but he still kept predicting an additional 50% crash.

 

 

And people listen to this crap. Sure, we may go lower again, but I do not see any reason for it. Here is my logic: The FED was raising the interest rates aggressively. Everyone was seeing it as a dangerous game that would put the US economy under such strain that it would break and crash. But it didn’t happen. Even after the aggressive hikes, the economy remained extremely strong. Yes, it is slowing, but it is not collapsing. The labor market also remains extremely strong. And on top of that, inflation is slowing down at a faster pace than anyone expected. So the FED paused hiking the rates.

If the economy hasn’t crashed during a year of aggressive interest rate hikes, why would it crash now when inflation is slowing, and the FED is probably done hiking the rates?
And people listen to doom and gloom predictors like Roubini, Grantham, or Wilson and keep buying puts. And they are losing money. They are selling their stocks and staying aside because people like Wilson are telling them that the markets will crash more. And they are missing the opportunity. Retail investors are still sitting on huge losses despite the recent rally, just because they stayed out of the market.

 

 

Analysts, who are usually wrong and more pessimistic than they need to be, predict earnings to drop by 7% this year. After 13 years of gains, a 7% drop in earnings is not catastrophic. In 2015 earnings dropped by 18%, and yet the US avoided recession. In 2011, earnings dropped by 2%, and the economy avoided recession, too, despite bears like Grantham saying that recession was imminent. Since 2021, earnings have dropped by 10.6% already, yet we are not in a recession. Well, technically, we are, but there is no catastrophic crash; the market already corrected almost 30% last year, if you haven’t noticed.