Tuesday, January 26, 2016

Dow Rises 300 Points on News of "earnings recession"!

From JP Morgan chief equity strategist Dubravko Lakos-Bujas, who cut his forecast for the S&P 500 for this year by a whopping 200 points! Oooooooh! 
"The risk-reward for equities is deteriorating. There is increasing risk that elevated volatility starts incurring enough technical damage to market psychology and spills over, negatively impacting investor, consumer and business sentiment, resulting in a lack of risk taking, and eventually creating a negative feedback loop into the real economy. Going forward we see equity risk remaining asymmetric to the downside given:
  1. rising risk of US earnings recession,
  2. diverging central bank policies and a Fed that is trying to tighten causing USD to strengthen,
  3. US manufacturing sector already in recession territory and non-manufacturing sector continuing to decelerate,
  4. deteriorating macroeconomic backdrop with China posing a significant risk to global markets,
  5. credit spreads widening and high yield approaching recession levels,
  6. late cycle dynamics,
  7. continued elevated volatility likely to impact sentiment—VIX has been averaging ~20 for the last 6 months"
 And on that news, the Dow is UP nearly 300 points today! Go figure!