The ongoing tug-of-war that I have been discussing since the beginning of the year seems to have tilted towards “all is good.” Smooth sailing ahead. The banking crisis has been averted. The Fed will have to end its hiking cycle and return to accommodation. The economy and corporate profits will withstand any challenges and remain resilient while inflation keeps falling right to the magic 2% target without any further policy action required. Crush the VIX and aggressively shift back to higher-multiple Technology and other growth-related areas because a new bull has started.

So, sounds reasonable, right? Pardon my sarcasm. I am going to keep my intro comments on the shorter side in this note because not a lot has changed in my work.

Yes, at the margin, my longstanding view of higher for longer for the Fed and an ultimate 5.5-6.5% terminal rate range may need to be tweaked lower. Importantly, however, my work still suggests the markets are underestimating Chair Powell and Gang’s resolve to fight inflation, and that the probability for the return of easing is likely not going to happen without explicit and worsening banking contagion.

Forward profit expectations are still too high based on my analysis and, until more negativity is discounted, the S&P 500 has limit...

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