Is profiting from news "Market in Turmoil" possible?

The Charlie Bilello research had a 100% win rate. On the surface, it looked very impressive. But it is based on data from 2010 to 2020, during the Super Bull Run. So it was not surprising. It was always "buying the dips" as prices always go up after a dip.

This research is incomplete as it only include data from the bull years and not from the years where there were recessions such as 2008 and 2000. In those years, the 1-Y returns were negative. Even the return for 2022 for S&P was -19.4%. If you include the recession years, his win rate will drop below 100%.

This year looks like the probability of the U.S. going to recession is high. CPI for Dec 2022 continued to decline. But the month over month tells you the true current pace. Core Inflation up 0.3% m-o-m which points to annualized 3.6% which is still well above the Feds desired 2% target. Shelter prices (housing) increased by 0.8% which translates to nearly 10% a year. Far too hot. Further wage inflation was report last week at 4.6% y-o-y with a slight slowing of trend to 0.3% m-o-m (3.6%) per year. All these point to the Fed not changing their tune of keeping rates higher for a long time.

The hikes by the Fed have done the job of lowering inflation, but it has come at the cost of an economy on the brink of recession. Here are some of the recessionary red flags:

- 48.4 ISM Manufacturing on Jan 4 with 45.2 New Orders -> recession.

- 49.6 ISM Services on Jan 6 with 45.2 New Orders -> recession.

- 89.8 NFIB Business Optimism Index on Jan 10 (lower reading than during Covid -> recession)

- Earnings season begins with 2 of the 4 major banks reporting weaker earnings. JPM warned that they are braced for recession.

If recession is on the way, that means lower corporate earnings (typically 20% drop in EPS) and this begets lower stock prices given what investors are willing to pay for that weakened earnings.

The previous quarter was likely one of the worst in years as earnings estimates got slashed for coming quarters. Another round of that would be harmful to stock prices.

We have to watch earnings closely - the change in estimates going forward and if the current expectations for a 7% decline in earnings in Q1 darkens or brightens from here. That will move the market.

The average recession leads to a 20% reduction in EPS expectations. That is certainly not factored into stock prices at this time. All the more reason to watch earnings estimates more carefully. The early bank results foreshadow more pain on the way.

So the S&P is likely to have a negative return again. Hence, I think it's not possible to benefit from the "Market in Turmoil" series this year.