Before the Open

The developments of the past week mean we cannot avoid a recession. At almost 18x earnings (& earnings forecasts set to fall even more), today's stock market has not come even close to pricing-in a recession (even if we avoid a banking crisis).

Banks stocks had become EXTREMELY oversold yesterday, so a short-term bounce should help the broad market short-term. However, when the dust settles, earnings estimates will continue to decline. That's not good for an expensive stock market.

Despite the full bailout of the SVB depositors, the "Innovation Industry" is going to have to shrink considerably. This has a lot of implications for the economy...and for 2023 earnings estimates. Lower earnings + an expensive stock market = lower stock prices.

The issues surrounding SVB Financial do not have to become a contagion to create problems for the stock market. It is another signal that less liquidity will stymie the markets for longer than the bulls think it can.

The huge move in the bond market over the past month shows that it is pricing-in "higher for longer." However, the lack of a similarly sized move in the stock market shows that it is not pricing-in this scenario yet.