Being negative can be terrific. Staying negative can be lethal. For, almost all of 2022 will be remembered as a year of disappointment and discouragement. Not for the bears. They were occasionally beaten back — but for the most part, they had the run of the joint. Any time you got too excited, too bullish, you got your arms ripped off by those darned bear claws, and not the kind they have at Dunkin’ Donuts. However, 2023 is already proving to be a different kind of year. Case in point: Mike Wilson, the genius of 2022, the strategist who was the most negative — and, therefore, the most right. He’s predicting another tough year ahead, although that doesn’t really jive with his S & P 500 target of 3,900. While the second lowest on Wall Street, it does not put us down much at all from 3,999. Wilson, whom I do not know personally, is looking for a particularly downbeat earnings season. Seven days ago, he predicted the bank earnings, the kick-off, would jolt the market by coming in sharply below expectations. In his winter of “disconnect” scenario— everyone always wants to have fun with Shakespeare — he said he believes investors will be surprised how dramatically earnings need to adjust. The Morgan Stanley strategist was right about the adjusting part, just in the wrong direction. All four of the big banks — JPMorgan (JPM), Bank of America (BAC), Wells Fargo (WFC) and Citigroup (C) — had their adjustments go higher — and in some cases, like Wells, our largest holding in the Club, rather dramatically. What happened? I think the banks may be a little microcosmic in that their revenues came in sharply higher than expected, their expenses lower than expected and their balance sheets far more intact than expected. Their forecasts were mostly for a mild recession, yet they all saw the prospects of bad loans coming in much lower than pre-Covid pandemic levels. I have always thought the banks indicative of the future of commerce. If balance sheets are strong and lending conservative, then a lot can be weathered, including fed funds — the Federal Reserve’s key policy interest rate — and unemployment of 5% and 5%. There are two takeaways here. The first is that Wilson was about as wrong as you can get about the major banks. Secondly, though, and more importantly, staying negative after a brutal 13 months, with tech still crashing from its November 2021 perch, can be hazardous to an analyst’s health. Not recognizing the high in long-term rates and the advances in housing, industrials and even consumer stocks since then shows that an effort to consign yourself to projecting the S & P 500 might consign yourself to the dustbin of others who stayed negative. I’m reminded here of two of the great prognosticators of the 1980s, Elaine Garzarelli, strategist at Shearson Lehman and Robert Prechter, an Elliott Wave disciple. Both were eerily correct about the coming Black Monday crash of 1987, with Garzarelli brilliantly precise in a pivot from bull to fierce bear a little more than a month before the crash. After that, we hung on every word from both of them. All we got were the same words. Bearish words. They never changed. They squandered their seer status by not taking in anything that changed for the positive and much did. I feel the same way right now about Wilson and his ilk, which includes the usual gang of billionaires who have absolutely nothing to gain from being positive and everything to gain from being negative. Now, I agree that it is incredibly easy to be negative. As the always eloquent Larry Fink, co-founder and CEO of BlackRock , the world’s biggest asset gatherer, put it in his conference call: “The challenges society has experienced not just in the past year but since the pandemic, has eroded hope and reinforced pessimism in many parts of the world.” He goes on to say, “We’ve seen a decline in birth rates and an increase in aging populations, a rise in nationalism and populism and I fear we are entering a period of economic malaise.” The latter word is usually pulled out only when you want to reference the words of former President Jimmy Carter, one of the unknowingly pessimistic of leaders. The manifestation of Fink’s view might come as early as Thursday when the cynics in Washington deal with the debt ceiling — once again revealing our rendezvous with nihilism and all of its ramifications. If Wilson et. al. are to be correct, they need the stock market to veer from Wall Street to Washington, obscuring what I think might be earnings that could be more like the Big Four banks than the bears will admit. Staying negative is so darned easy. At my hedge fund, we would dutifully call the Prechter hotline each week after the crash for words of wisdom. We would be incredibly wary of being long lest we run into a Garzarelli interview or television appearance. They were cogent long after a bottom was formed. They obscured it well. As someone who was in cash before the crash, I was keenly attuned to them. I had no desire to give up my newfound seer status, at least among the investing community, and I thought the only way to truly destroy it would be to go positive. Fortunately, it took a few months to stabilize and rally without me for me to distance myself from those two sages. I never got positive enough though during 1988 and missed some nice and easy gains. I know that there will be segments that I think will breed pessimism, most notably retail and technology. The first, retail, could wilt because people are spending, as we know from the commentary from the bankers. They just aren’t spending it on fixing up their homes or their wardrobes. They are spending on travel and entertainment. Judging by the minuscule decline in credit balances, the money can only go to that one winning class of spend. There’s not enough left over for anything new in the home, save food. The second, far more problematic, could continue to decline because of a lack of belief in the companies that created such amazing wealth, and for purposes of example, let’s include Tesla (TSLA) in the mix. The most popular stories of the era that ended in 2021 were the mega caps and they were defrocked in 2022 in hideous fashion. They will have their ups, but they will show a level of cyclicality as formerly befitted Caterpillar (CAT) or General Motors (GM). The same goes for once-beloved enterprise software and fintech. Fortunes have been made in enterprise software and now fortunes are still being lost. The big banks have obviated not just the earnings power but the actual being of fintech. Now the mega caps, hostage to advertising, still have the ability to take billions of cost out but they seem reluctant as their brilliance seems to have been put on hold by their flailing corporate customers. The mega caps that need a strong consumer could be stymied, too. What’s most important, though, is the end of the two-tiered market of mega-cap and just plain old cap. It’s not going to end by having a cap rally to meet mega-cap. The carry-over from 2022 could be the bearish shock that periodically resurrects the reputation of the bulls. The techs and fintechs plus Washington will cause the markets to flirt with negativity. That’s not unlike 1987-1988 post-crash. There were moments when those who stayed negative were quickly vindicated and just as quickly tarnished by a rally. But this might be the year where tech is put in its bottled place in the S & P 500 allowing other areas that have shown nothing but strength since the bottom in October, notably industrials and financials. It’s hard to imagine those two groups being leaders in a mild recession, just as hard as it is to imagine tech and fintech being the laggards. Yet, that’s what I see being traced out as a possibility in 2023, something that seems impossible to reconcile except by the earnings themselves. So it may, indeed, be the winter of our disconnect. However, the disconnection could very well be not one between bullishness and reality but between bearishness and the future. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Traders work on the floor of the New York Stock Exchange (NYSE) on August 5, 2022 at Wall Street in New York City.
Angela Weiss | AFP | Getty Images
Being negative can be terrific. Staying negative can be lethal. For, almost all of 2022 will be remembered as a year of disappointment and discouragement. Not for the bears. They were occasionally beaten back — but for the most part, they had the run of the joint. Any time you got too excited, too bullish, you got your arms ripped off by those darned bear claws, and not the kind they have at Dunkin’ Donuts.
