Investors could face the polar opposite of the Goldilocks scenario of ideal conditions, according to Doug Ramsey, CIO of the Leuthold Group.
“Not too hot and not too cold? What about both?” Ramsey wrote in a note (emphasis added).
“Job growth and inflation are hot enough for the Fed to follow through on its hawkish promises,” he said. “But leading indicators continue to warn us of approaching cold. Chances are the porridge will settle at the right temperature, with no intermediate recession, look longer day by day.”
While the best long-term entry points into the stock market were to be had in dire economies, it happened when the issues were factored in, Ramsey said.
In 1990, a 20% drop in the S&P 500 (SP500) (NYSEARCA: SPY) coincided with runaway inflation and falling leading indicators “and a spectacular bull was born,” not in 2022, he said.
“Cash is tight and the band has rolled, but valuations are trading near their pre-COVID highs.”
“At some point in the bear market, we will go where ‘bad news is good news,'” he added. “But price-wise, it’s probably at least a few hundred S&P points below current levels.”
The S&P closed at 4,067 on Friday.
“The question of time is more difficult due to the unpredictable lags associated with major economic indicators.”
BofA says the good news for bulls is that stocks are still holding up against bonds.