We’ve probably spent ample time of late on our view that the current bear market likely has more downside to play out before the coast is clear, but I’ll go ahead and offer up the 3 main (most obvious) fundamental bullet-points explaining why that makes sense to us:

• Odds favor recession (albeit mild in our present view) in 2023.
• Corporate earnings estimates (embedded in stock prices) don’t appear to reflect recessionary conditions.
• The Fed, and the ECB, in particular, continue to voice their commitment to tighter monetary policy in order to tame inflation, despite rising recession risk.

If, on the other hand, as some strategists contend, should factors such as the relative strength of the consumer (read service sector activity), a still-strong labor market, inflation continuing to abate, China reengaging with the global economy (although that one could get initially dicey as covid cases spike) and so on, ultimately overcome otherwise recessionary forces, then, in fact, the worst may indeed be over… Which is a possibility we’re open to.

But, before we move on, allow me to state the bears’ counterpoints to that last paragraph:

While consumers continue to spend on services, their credit card balances are on the rise and their savings rate has plummeted — one, therefore, has to wonder how sustainable that “relative strength” will be going forward… That “still-strong” labor market has been explicitly targeted by the Fed as needing to weaken if they’re going to get inflation under control (i.e., as long as it’s strong, they say they’ll keep tightening)… Indeed, inflation will continue to abate in the short-run, however, the next point — China’s reengagement — will likely gain steam, which, given the consumption engine that China is, could be net inflationary further into 2023… Throw in the $1.7 trillion in spending the U.S. government is scheduled to do next year and, yeah, getting inflation under wraps without a recession is gonna be a tall order.

Asian stocks leaned green again overnight, with 9 of the 16 markets we track closing higher.

Europe’s green nearly across the board so far this morning, with 16 of the 19 bourses we follow trading up as I type.

US stocks are higher to start the session: Dow down 58 points (0.17%), SP500 up 0.58%, SP500 Equal Weight up 1.33%, Nasdaq 100 up 0.15%, Nasdaq Comp up 0.37%, Russell 2000 up 1.40%.

The VIX sits at 22.46, down 1.92%.

Oil futures are down 4.07%, gold’s up 1.09%, silver’s up 0.40%, copper futures are down 0.84% and the ag complex (DBA) is down 0.85%.

The 10-year treasury is up (yield down) and the dollar is down 0.32%.

Among our 36 core positions (excluding options hedges, cash and short-term bond ETF), 33 — led by Dutch Bros, Disney, Albemarle, Eurozone equities and MP Materials– are in the green so far this morning. The 3 losers are base metals futures, Amazon and ag futures.