Fri, June 3, 2022 | 5:26PM ET

My Work Suggests More Downside Ahead

Head of Global Portfolio Strategy and Asset Allocation

Fed Vice Chairperson Lael Brainerd’s comments on Thursday supported the hawkish thesis I’ve been repeating for many months, and arguably took the quick end to Fed tightening off the table for now. Despite a few glimmers of hope and some evidence that headline inflation has peaked, the latest readings remains well above the central bank’s target level. Hence, I reiterate my expectation that the inflation fighting actions from the FOMC will likely remain in place until there is irrefutable trend that progress has been achieved. Notably, the hawkish Fed is converging with other risks and a weakening indicator backdrop is portending that there’s a high likelihood that there is more downside for the S&P 500 in front of us. Additionally, my proprietary earnings revisions work is flashing a worrisome signal that a profit cutting cycle by Wall Street analysts is slowly occurring and much more is yet to come, which will likely hit all things cyclical the most. Ugh, the road ahead remains filled with challenges before the equity markets have a chance to get back to a smoother path based on my work.

Another wrinkle that hasn’t been front center is the negative impact that the strength in the U.S. dollar is going to have on corporate profits as the greenback is up nearly 15% yr/yr. Indeed, Microsoft may have been the canary in the coalmine for FX risk as the announced a nearly $500mm shortfall for its next quarters operating results. The strong dollar will surely hurt the earnings of many large-cap companies with international footprints. Based on my analysis, I expect further declines in earnings revisions, and investors should keep this in mind before chasing any rallies too aggressively.

Become a Member To Access Fundstrat Research

Fundstrat Direct gives individual investors access to Tom Lee's research, previously only available to banks and hedge funds.

Monthly

$199/mo

First Month Free

Join Now

Annual

-15% $2,028/yr

List Price $2,388

Savings: $360/yr

Join Now

Why Join Fundstrat Direct?

Fundstrat Direct helps you invest confidently with the same research banks and hedge funds use to navigate the market.

Daily Strategy from Tom Lee & Team

Stay ahead of consensus with daily updates on key developments & catalysts and opportunities ahead.

Real-Time Market Alerts

Analysis on market-moving events and actionable opportunities delivered instantly from us to you.

Curated Stock Lists

Choose the portfolio that best suits your investment style, preferred asset class, and time horizon.

Monthly Market Update & Top Ideas Webinar

Attend engaging webinars with Tom & team featuring our top ideas and near-term market outlook.

Daily Technical Strategy

Receive tactical opportunities, actionable signals, and fundamental analysis from our proven research team.

Live Analysis on Your Holdings

A monthly webinar featuring live analysis on member-submitted stocks and questions.

More from the author

Brian Rauscher, CFA ^AC

Head of Global Portfolio Strategy and Asset Allocation

Disclosures (show)

This research is for the clients of Fundstrat Direct only. Fundstrat Direct Subscription entitles the subscriber to 1 user, research cannot be shared or redistributed. For additional information, please contact your sales representative or Fundstrat Direct at fundstratdirect.com.

Analyst Certification (Reg AC)

Brian Rauscher, CFA, the research analyst denoted by an “AC” on the cover of this report, hereby certifies that all of the views expressed in this report accurately reflect his personal views, which have not been influenced by considerations of the firm’s business or client relationships. Neither I, nor a member of my household is an officer, director, or advisory board member of the issuer(s) or has another significant affiliation with the issuer(s) that is/are the subject of this research report. There is a possibility that we will from time to time have long or short positions in, and buy or sell, the securities or derivatives, if any, referred to in this research.

Conflicts of Interest

This research contains the views, opinions and recommendations of Fundstrat Direct. At the time of publication of this report, Fundstrat Direct does not know of, or have reason to know of any material conflicts of interest.

General Disclosures

Fundstrat Direct is an independent research company and is not a registered investment advisor and is not acting as a broker dealer under any federal or state securities laws.

Fundstrat Direct is a member of IRC Securities’ Research Prime Services Platform. IRC Securities is a FINRA registered broker-dealer that is focused on supporting the independent research industry. Certain personnel of Fundstrat Direct (i.e. Research Analysts) are registered representatives of IRC Securities, a FINRA member firm registered as a broker-dealer with the Securities and Exchange Commission and certain state securities regulators. As registered representatives and independent contractors of IRC Securities, such personnel may receive commissions paid to or shared with IRC Securities for transactions placed by Fundstrat Direct clients directly with IRC Securities or with securities firms that may share commissions with IRC Securities in accordance with applicable SEC and FINRA requirements. IRC Securities does not distribute the research of Fundstrat Direct, which is available to select institutional clients that have engaged Fundstrat Direct.

As registered representatives of IRC Securities our analysts must follow IRC Securities’ Written Supervisory Procedures. Notable compliance policies include (1) prohibition of insider trading or the facilitation thereof, (2) maintaining client confidentiality, (3) archival of electronic communications, and (4) appropriate use of electronic communications, amongst other compliance related policies.

Fundstrat Direct does not have the same conflicts that traditional sell-side research organizations have because Fundstrat Direct (1) does not conduct any investment banking activities, and (2) does not manage any investment funds.

This communication is issued by Fundstrat Direct and/or affiliates of Fundstrat Direct. This is not a personal recommendation, nor an offer to buy or sell nor a solicitation to buy or sell any securities, investment products or other financial instruments or services. This material is distributed for general informational and educational purposes only and is not intended to constitute legal, tax, accounting or investment advice.
The statements in this document shall not be considered as an objective or independent explanation of the matters. Please note that this document (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and (b) is not subject to any prohibition on dealing ahead of the dissemination or publication of investment research.
Intended for recipient only and not for further distribution without the consent of Fundstrat Direct.

This research is for the clients of Fundstrat Direct only. Additional information is available upon request. Information has been obtained from sources believed to be reliable, but Fundstrat Direct does not warrant its completeness or accuracy except with respect to any disclosures relative to Fundstrat Direct and the analyst’s involvement (if any) with any of the subject companies of the research. All pricing is as of the market close for the securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, risk tolerance, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies. The recipient of this report must make its own independent decision regarding any securities or financial instruments mentioned herein. Except in circumstances where Fundstrat Direct expressly agrees otherwise in writing, Fundstrat Direct is not acting as a municipal advisor and the opinions or views contained herein are not intended to be, and do not constitute, advice, including within the meaning of Section 15B of the Securities Exchange Act of 1934. All research reports are disseminated and available to all clients simultaneously through electronic publication to our internal client website, fundstratdirect.com. Not all research content is redistributed to our clients or made available to third-party aggregators or the media. Please contact your sales representative if you would like to receive any of our research publications.