Earnings season failed to give the market functional clarity, says Gilman Hill's Jenny Harrington
Jimmy, you did have the lowest inflation rate in a couple of years. Where's your rally? Where is the rally? Yeah, well, it's not here today. Let's answer that question first off. But I think there's a simple explanation of what's going on in the market. I think the stock market right now just is in fear of a recession and really believes the recession is going to hit. You can see that right now at the corner of my eye. I'm looking at the year-to-date returns for the S&P 500 versus the Nasdaq versus the Dow.
Round numbers, the S&P 500 is up 7.5%. The Nasdaq, which as we know is heavily populated by the Fang stocks, is up 17.1% and the Dow is flat on the year. Now, the Fang stocks for the last 15 years have been the place that investors go in slow to no growth environment. That's been the only place to get growth in earnings in a slower no growth environment. And the market is just screaming right now that it thinks the recession is coming.
To me, actually, I think this is a good setup. There's been a lot of damage done in cyclical names, a lot of damage. Underperforming today, obviously. Underperforming today. And you can see that in the Dow versus the Nasdaq. There's 100 basis points of difference. If you start to get indications that this recession is further away and Friday's labor report was such an indication, when you get those indications, it sets up the cyclicals from these very low valuations to rally nicely.
Okay, Jenny, take that on. Because the New York Fed's own recession indicator spiking today, cyclicals, as we said, underperforming. There's a lot of concern about where this economy is heading. Inflation, I think the word of the day is sticky. Yes, it's down. It's not down that much. And it's going to be an aggravating fight to try and get it lower.
And we'll see what the Fed's going to do. This doesn't clinch anything in terms of what Santoli had to say earlier, which I think is a fair way of assessing. Pause, most likely. No clinch on anything. You know what's interesting? Yesterday, you put a chart up from JPMorgan and it said, here are expectations of what's going to happen tomorrow morning. And this was the expect. What happened? It was already baked in.
Right? This is what there was 50 percent plus odds of happening. And so where I think we are is, I'm not sure I entirely agree with Jim that the market's just really fearing a recession. I think where we are is in this incredibly opaque environment where nothing really points too strongly in either direction. And what do we know the market hates? The market hates opacity. The market wants clarity. And we're muddling through this earnings season, but even earnings haven't given us functional clarity, because what we've seen is some really excellent numbers, a lot of beats. But then what was guidance? All the guidance, not all.
Almost all the guidance was saying something like, but you know, we had great earnings, but we're not going to raise for the rest of the year because there's too much opacity. We don't really know what the landscape looks like. So to me, what I'm looking for, what I'm waiting for is some kind of clarity. We need either. How are you going to get that? I mean, where are you going to get that from? I hear what you're saying. I think everybody's waiting for that, but you act like it's just going to show up. What is the clarity you're looking for? This is not a wonderful answer because it's really painful.
I think we need two more quarters of earnings. And I think we just need to get through that. And nobody likes patience, especially in the stock market. The market hates to employ patients. But how else are we going to get there other than having another quarter under our belt, another quarter after that under our belt? And then maybe you see that that whole we don't know what the rest of the year looks like. Therefore, we can't forecast and we're not going to raise. Maybe we're past that.
The other thing that I really struggle with is this neither here nor there, multiple on the market, which is we're still hovering around 17 and a half times. Yeah, I know we can make the argument that the big guys take up a lot of that weight in everything, like the other 490 components of the S&P 500 are well under the 18 times. But by and large, we just don't have cheap multiples out there. Well, the problem is, I mean, I think Jim is undeniably correct. I mean, recession is the overhang. That's that is the overhang, no matter how you want to throw. The reason why we can't get out of the range that we're in is because we're fearful of a recession.
We're fearful that multiples as they exist today are not the multiples of tomorrow, that the great earnings that you reference a moment ago are not the earnings of tomorrow. But yesterday we were saying the debt ceiling is the overhang. No, but that's the nearest term overhang, because as we said, the market has this tunnel vision. Today it's the debt ceiling tomorrow and every day thereafter, so to speak, is recession fear. And until you break that, you can't get out of the range. What do you think? I think you're 100% correct. And the word that I would use is, the market has no breath and you need that.
It's too narrow. The focus is on rotating away from cyclicals into growth, growth at a reasonable price. And that leads to an environment where energy is down once again today. Why? Concerns about demand, weakness.
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