Outlook still "fundamentally bearish" despite Wall Street rally

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No we' re not out of the woods yet

Illustration: Sarah Grillo/Axios Wall Street is lulling itself into (yet another) bear market rally. Why it matters: On Friday, October jobs data that defied economists expectations sent major benchmarks on a tear. Yet the market’s action belies an outlook that’s still tilting toward recession, and a Federal Reserve that’s as committed as ever to stamping out inflation with higher rates. Driving the news: Earlier this week, the Fed to less aggressive tightening, speculation of which had bolstered brisk gains in the Dow and S&P 500 Index. Last month, stocks posted their since 1976 (?) — partly in hopes that the central bank would pull back on the monetary policy throttle, and avoid a hard landing for the economy. The intrigue: In spite of the rally, analysts are warning that yes, we’re still in a bear market, and no, the downward drift of growth and earnings don’t justify the market’s bullish tone. What they’re saying: In a research note issued Friday, Morgan Stanley flatly pointed to “fundamentally bearish, with leading indicators showing further deterioration.” Weaker growth could eventually force the Fed to slow down, but the firm says the S&P could rally as high as 4150 “ before the next leg of this bear market, which we target closer to 3000-3200.” Caveat emptor, indeed. The bottom line: Even with the carnage wrought by this year’s bear market, stocks are still too rich for comfort. According to DataTrek Research co-founder Nick Colas, stocks are still trading at multiples well above likely recession-level earnings. “In yesterday’s press conference Chair Powell said he was not especially worried about a deep recession since the Fed can always cut rates to support the US economy. Perhaps, at the margin, investors believe the same thing,” Colas wrote.

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