The red flag that preceded the halving of global equities in 2000 and 2007 is back, Citi warns

We are one day away from the data that could be a turning point for the markets.

If Wednesday’s CPI does not reveal a slowdown in prices, expectations of a further Fed rate hike in September will rise, possibly weighing on equities. But if it turns the other way, especially after surprisingly good jobs data, the view could prevail that things are not as bad as feared/Fed hikes could be done soon.

Wall Street seems to be struggling lately to advise stepping carefully with the optimism that the S&P 500 SPX has,
-0.12%
ready to break two consecutive quarters of losses, up 9.3% in the third quarter so far.

“The central challenge to the notion that there will be a more significant Fed pivot is that the near-term inflation outlook is likely to remain uncomfortably high,” Goldman Sachs strategists Dominic Wilson and Vicki Chang said in a note. Monday night.

But amidst the caution, there are still plenty of recommendations to buy shares from the sell side, that is, the brokerage houses and investment banks. And that’s a big red flag investors may want to heed, warns our call of the day of Citigroup.

“Our global sell-side recommendations index has returned to peak levels of optimism reached in 2000 and 2007, after which global equities halved,” said a team led by chief global equities strategist , Robert Buckland.

“Analysts are net buyers of all sectors in all regions, but generally they are,” he said, noting a specific concentration in the US and emerging markets. “They remain bullish on cyclicals, suggesting few fears of a looming global recession.”

Citi calculates its global sell-side call index by aggregating those of all stocks in the MSCI indices, ranging from 5, a strong buy, to 1, a strong sell. His index is above three almost everywhere. They point out that analysts are never net sellers of their shares, even in bear markets. While it appears that analysts are getting more bullish as stocks rise, it could also be that “the market is going higher because they are getting more bullish.”

Citi Research, Dataset

In any case, that “herd of analysts” has triggered a red flag on Citi’s bear market checklist, which has been narrowed down to 6 out of a potential 18 flags. Note that this particular flag gave a false sell signal in 2012, when global stocks were flat for the next 12 months. But still, what happened in 2000 and 2007 makes it worth noting, they say.

Buckland and team say that analysts tend to misread the start of bear markets, becoming even more bullish when they should be increasingly cautious. “Although they are starting to revise earnings forecasts down, falling share prices and cheapening valuations keep them positive. They eventually become more cautious as earnings forecasts fall further, but it’s a slow process.”

The markets

ES00 US Stock Futures,
-0.22%

YM00,

NQ00,
-0.61%
they are winding, with markets in a holding pattern ahead of Wednesday’s data. The DXY dollar,
-0.32%
has fallen and CL.1 oil prices,
+1.36%

BRN00,
+1.37%
they are also inferior. Treasury yields TMUBMUSD10Y,
2.799%

TMUBMUSD02Y,
3,238%
they are skirting higher. SXXP European Stocks,
-0.57%
are slow and bitcoin BTCUSD,
-3.52%
it’s hovering around just under $24,000.

The buzz

Take-Two TTWO,
-1.30%
stocks fall after video game publisher revised its outlook lower on Monday night.

Novavax shares NVAX,
-5.01%
are down 30% after the vaccine manufacturer cut its sales guide in half.

Micron Technology MU Memory Chip Group,
-1.62%
warned about revenue, saying separately that it will make a $40 billion investment and create up to 40,000 jobs in the US The White House will hold a signing ceremony Tuesday for the CHIPS Act that is intended to encourage domestic production of microchips.

Cathie Wood of ARK Invest told Bloomberg she sold some shares of Coinbase COIN,
+5.34%
due to uncertainty over an SEC investigation.

JPMorgan strategist and stoic bull Marko Kolanovic has suggested investors cut some stock holdings and pick up commodities as recession fears ease.

the fbi They raided the house of President Donald Trump in Mar-a-Lago, apparently looking for classified records. Some Republican legislators they are outraged.

US labor costs rose 10.8% in the second quarter, while productivity fell 4.6%.

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