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Too Early To Get Bullish: Mike Wilson Sees S&P Tumbling To 3400 In Less Than Three Months

Too Early To Get Bullish: Mike Wilson Sees S&P Tumbling To 3400 In Less Than Three Months

A curious trend has emerged in Bank of America’s…



Too Early To Get Bullish: Mike Wilson Sees S&P Tumbling To 3400 In Less Than Three Months

A curious trend has emerged in Bank of America's monthly Fund Manager Survey: with every passing month, as the S&P grinds lower and lower until it finally briefly dipped into a bear market on Friday, the prevailing consensus among Wall Street investors for where the "Fed put" is has also declined with every passing month...

... and is currently at just 3529, down from 36347 in April, and from 3698 in February.

None of that is a surprise to Morgan Stanley's Michael Wilson (the second most bearish "Michael" - and strategist - on Wall Street after BofA's Michael Hartnett) who one week after saying that the S&P will likely drop to 3,400 as "that is where valuation and technical support lie" before rebounding to his base cae target of 3,900, picks up where he left off and in his latest Weekly Warm-up note, says that bearishness is spreading fast and "de-rating is now a consensus view" but the magnitude is still up for debate (as the above shrinking Fed Put trends show).

As Wilson elaborates in his latest note (available to pro subscribers) while most clients agree P/Es should be lower than last year, there is still some debate around how low P/Es should fall. In this context, many MS clients believe that the de-rating is now over with the S&P 500 NTM P/E having fallen to 16.5x from 21.5x last November. Here Wilson agrees, but is not so sure that earnings forecasts are correct.

In fact, Wilson adds, the S&P 500 reached a reasonable level last week when ERPs traded as high as 345bps which is right in line with Morgan Stanley's current fair value target. However, according to Wilson, 345bps is too conservative now given the likely fall in earnings forecasts and PMIs over the next 6 months, not to mention the greater than average geopolitical risks. Indeed, P/Es typically lead EPS revisions and this time should be no different.

Meanwhile, just to make sure he continues to lead the market on the way down as all of his peers scramble to catch down to his year-end forecast, Wilson again lowered his target P/E on both a normalized (16.5x) and short term (14.5x) basis "given the risk to earnings growth that is more visible and less deniable, particularly for consumer and technology oriented companies. Or as he puts it:

"... the S&P 500 P/E will fall toward 14x ahead of the oncoming downward EPS revisions. ~14.5x, which assumes an ERP of ~400bps, mutiplied by the current NTM EPS of $237 is how we arrive at our near term overshoot of fair value scenario of 3400- which we have discussed in recent reports."

Meanwhile, energy - a sector we have been pitching since the summer of 2020 - has officially emerged as the most favored sector by generalists, and inflation expectations remain high. As such, Wilson warns that investors view the hawkish Fed as appropriate and since he expects the S&P to drop at least another 550 points to 3,400, Wilson cautions that "the Fed put strike price is now below 3500."

Furthermore, while bearishness is now pervasive, Wilson notes that this is a necessary condition for a sustainable low, but an insufficient one. Indeed, as we pointed out in last month's Fund Manager Survey, "while sentiment and positioning for active institutional investors is low, asset owner clients remain heavily exposed to equities. As they reallocate, this should further weigh on equity prices."

Continuing his trek through Wall Street's bearish underbelly, Wilson next pays a visit to the biggest question mark facing the US economy - the health of the consumer - which according to Walmart and Target is far worse than career economists and Fed talking heads will have everyone believe.

As Wilson puts it, while COVID has been a terrible period in history, many consumers, like companies, actually benefited financially from the pandemic: "Between the combination of record amounts of stimulus provided directly to many households and asset price inflation for homes, stocks and crypto currency, most consumers experienced a one time windfall in wealth." But coming into 2022 Wilson's view, just like ours, was that "this gravy train was about to end for most households as we anniversaried the stimulus, asset prices de-rated and inflation in non-discretionary items like shelter, food and energy ate into savings."

And indeed, consumer confidence readings for the past 6 months supported the view that things aren't so great anymore for the average household. Yet, many investors have continued to argue erroneously the consumer is likely to surprise on the upside with spending as they use up excess savings to maintain a permanently higher plateau of consumption (this, as we noted last October, was the core premise behind Goldman's cheerful late 2021 GDP forecasts which the bank crucified last weekend).

The shift from goods to services has been the other rallying cry for the US consumer, a theme which as Wilson has frequently noted, is a net negative for the stock market given the much higher contribution of consumer goods versus services companies to the overall market cap of the consumer discretionary sector.

If that wasn't enough, over the past few weeks more nascent weakness has emerged as the consumer sector has been pummeled by bad news from the largest US retailers (WMT, TGT, ROST, etc) all of whome cited weaker demand and profitability. This is in line with Wilson's that the consumer will remain a positive contributor to the overall economy this year but the slowdown in consumer activity will contribute to negative operating leverage. It's effectively the reversal of the over earning that many consumer oriented companies experienced over the past few years.

Finally, there is still a strong view from many clients to play a re-opening trade as the consumer moves from goods to services spending. However, as noted above, that trade may be at risk now as airline and other travel expenses become out of reach for many households, and we have in fact noted the drop in airline ticket purchases following the record surge in air fares.  As such, Wilson says that he remains underweight the consumer discretionary sector and believes it will disappoint on earnings this year.

There's more: while the narrative of the "strong US consumer" is cracking, Wilson says that the other big push back he received to his bearish year ahead outlook in recent client meetings, was on the view that technology spending would likely disappoint the aggressive assumptions coming into 2022. Technology bulls argue that work from home only benefited a few select companies while most would continue to see very strong growth from the very positive secular trends for technology spend. In fact, many bulls argued technology spending was no longer cyclical but structural and non-discretionary, especially in a world where costs are rising so much. Companies would spend more on technology, especially software, to become more efficient.

Wilson says he strongly disagreed with that view and argued technology spending is inherently cyclical and would follow corporate cash flow growth and corporate sentiment. There has also been a massive pull forward of many durable technology goods amid covid like PCs, handsets, servers, etc...a trend that would require a period of absorption in 2022.

That said, when marketing his mid-year outlook, Wilson found many technology investors are now on his page and more worried about companies missing forecasts than he has heard in over a decade. While some may view this as bullish from a sentiment standpoint, the MS strategist thinks it's a bearish sign as investors will likely want to wait to buy the dip from here and even sell key core positions which seems to be what's been happening since 1Q earnings season. Bottom line, Wilson believes that "technology spending is likely to go through a cyclical downturn this year and it could extend to even the more durable areas. While clients aren't in denial about this risk anymore, it's not fully priced, in our view. We remain underweight cyclical tech (hardware and semis) and neutral on internet/software."

Shifting the discussion to another topic, Wilson writes that "perhaps the biggest change in the past 6 months is the view that inflation is here to stay and no longer transitory." At the end of last year there was a more balanced view that inflation could come down in 2022 and allow the Fed to take a more modest path on rate hikes to get it under control. But that view is now out the window with the severe move higher in both front and back end rates. As a result, Wilson finds himself much more bullish on long duration bonds than the average equity client; he explains why:

Our more bullish view is even more in contrast to the views of macro and rates oriented clients. This is in stark contrast to year end when we were much more bearish on long duration bonds than the average equity client. As such, we are taking this as a contrarian signal, particularly given our more bearish view on growth which should drive more money into bonds from both retail and institutional asset allocators. In fact, we think part of the move lower in yields and stocks is the direct result of this re-allocation which has further to go.

Which brings us again to the topic du jour, the Fed Put, which Wilson repeats remains below 3,500 mostly due to the hawkish Fed. As the MS strategist notes, "this is another area where equity clients have pivoted significantly since year end. Most are now in the hawkish Fed camp and realize the reaction function has changed from prior decades. This is all due to the inflation genie having escaped from the bottle."

Echoing what we observed up top when looking at the sliding Fed Put estimates by FMS respondents, Wilson writes that many still think there is a Fed put but they acknowledge the strike price is now lower and agree that it's somewhere below 3500 on the S&P 500. This would be down approximately 15% y/y which is a level that will start to have a negative wealth effect - we showed this morning that as of this moment, a whopping $20 trillion in household wealth has been lost, a number which is still not enough for the Fed...

... which will also help slow demand, a necessary condition for the Fed to get inflation under control.

Taking all of this together, Wilson says that "equity clients are bearish overall and not that optimistic about a quick rebound" and while this is a necessary condition for a sustainable low, it is note a sufficient one. And while Wilson's 12 month target for the S&P 500 is 3900, he expects an overshoot to the downside this summer that could come sooner rather than later (sooner, since he expects the S&P to drop by almost 600 points in the next 3 months). Additionally, while sentiment and positioning for active institutional investors is low, asset owner clients remain more heavily exposed to equities, and as they reallocate toward bonds and other assets less vulnerable to slowing growth/recession, "this should weigh on equity prices in the near term."

In conclusion, Wilson thinks that 3400 is a level that more accurately reflects the earnings risk ahead and he expects that level to be achieved by the end of 2Q earnings season, if not sooner. Until then, he urges traders to use vicious bear market rallies to lighten up on the areas most vulnerable to the oncoming earnings reset.

More in the full note available to professional subscribers.

Tyler Durden Mon, 05/23/2022 - 14:01

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Family Of College Student Who Died From COVID-19 Vaccine Sues Biden Administration

Family Of College Student Who Died From COVID-19 Vaccine Sues Biden Administration

Authored by Zachary Stieber via The Epoch Times (emphasis…



Family Of College Student Who Died From COVID-19 Vaccine Sues Biden Administration

Authored by Zachary Stieber via The Epoch Times (emphasis ours),

The family of a college student who died from heart inflammation caused by Pfizer’s COVID-19 vaccine has sued President Joe Biden’s administration, alleging officials engaged in “willful misconduct.”

George Watts Jr. in a file image. (Courtesy of the Watts family)

U.S. Department of Defense (DOD) officials wrongly promoted COVID-19 vaccination by repeatedly claiming the available vaccines were “safe and effective,” relatives of George Watts Jr., the college student, said in the new lawsuit.

That promotion “duped millions of Americans, including Mr. Watts, into being DOD’s human subjects in its medical experiment, the largest in modern history,” the suit states.

The Public Readiness and Emergency Preparedness Act allows lawsuits against certain people if they have engaged in “willful misconduct” and if that misconduct caused death or serious injury.

COVID-19 vaccines are covered by the act due to a declaration entered during the Trump administration in 2020 after COVID-19 began circulating.

DOD’s conduct and the harm caused as alleged within the four corners of the lawsuit speaks for itself,” Ray Flores, a lawyer representing the Watts family, told The Epoch Times via email. “I have no further comment other than to say: My only duty is to advocate for my client. If the DOD conveys a settlement offer, I will see that it’s considered.”

The suit was filed in U.S. court in Washington.

The Pentagon and the Department of Justice did not respond to requests for comment.

Watts Suddenly Died

Watts was a student at Corning Community College when the school mandated COVID-19 vaccination for in-person classes in 2021. He received one Pfizer dose on Aug. 27, 2021, and a second dose approximately three weeks later.

Watts soon began experiencing a range of symptoms, including tingling in the feet, pain in the heels, numbness in the hands and fingers, blood in his sperm and urine, and sinus pressure, according to family members and health records.

Watts went to the Robert Packer Hospital emergency room on Oct. 12, 2021, due to the symptoms. X-rays showed clear lungs and a normal heart outline.

Watts was sent home with suggestions to follow up with specialists but returned to the emergency room on Oct. 19, 2021, with worsening symptoms despite a week of the antibiotic Augmentin. He was diagnosed with sinusitis and bronchitis.

While speaking to his mother at home on Oct. 27, 2021, Watts suddenly collapsed. Emergency medical personnel rushed to the home but found him unresponsive. He was rushed to the same hospital in an ambulance. He was pronounced deceased at age 24.

According to a doctor at the hospital, citing hospital records and family members, Watts had no past medical history on file that would explain his sudden death, with no known history of substance abuse or obvious signs of substance abuse. His mother described her son as a “healthy young male.”

Dr. Robert Stoppacher, a pathologist who performed an autopsy on the body, said that the death was due to “COVID-19 vaccine-related myocarditis.” The death certificate listed no other causes. A COVID-19 test returned negative. Dr. Sanjay Verma, based in California, reviewed the documents in the Watts case and said that he believed the death was caused by the COVID-19 vaccination.

Pfizer did not respond to a request for comment.

Watts Took Vaccine Under Pressure

The community college mandate included a 35-day grace period following approval by the U.S. Food and Drug Administration (FDA) of a COVID-19 vaccine.

The Moderna, Pfizer, and Johnson & Johnson vaccines were given emergency use authorization early in the pandemic. The FDA approved the Pfizer shot on Aug. 23, 2021. It was the first COVID-19 vaccine approval. But doses of the approved version of the shot, branded Comirnaty, were not available for months after the approval.

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Tyler Durden Fri, 06/02/2023 - 23:00

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US Sent Billions in Funding to China, Russia For Cat Experiments, Wuhan Lab Research: Ernst

US Sent Billions in Funding to China, Russia For Cat Experiments, Wuhan Lab Research: Ernst

Authored by Mark Tapscott via The Epoch Times…



US Sent Billions in Funding to China, Russia For Cat Experiments, Wuhan Lab Research: Ernst

Authored by Mark Tapscott via The Epoch Times (emphasis ours),

Hundreds of millions of U.S. tax dollars went to recipients in China and Russia in recent years without being properly tracked by the federal government, including a grant that enabled a state-run Russian lab to test cats on treadmills, according to Sen. Joni Ernst (R-Iowa).

Sen. Joni Ernst (R-Iowa) speaks at a Senate Republican news conference in the U.S. Capitol on March 9, 2022. (Anna Moneymaker/Getty Images)

Ernst and her staff investigators, working with auditors at the Government Accountability Office (GAO) and the Congressional Research Service, as well as two nonprofit Washington watchdogs—Open The Books (OTB) and the White Coat Waste Project (WCWP)—discovered dozens of other grants that weren’t counted on the federal government’s internet database.

While the total value of the uncounted grants found by the Ernst team is $1.3 billion, that amount is just the tip of the iceberg, the GAO reported.

Among the newly discovered grants is $4.2 million to China’s infamous Wuhan Institute of Virology (WIV) “to conduct dangerous experiments on bat coronaviruses and transgenic mice,” according to a May 31 Ernst statement provided to The Epoch Times.

The $4.2 million exposed by Ernst is in addition to previously reported funding to the WIV for extensive gain-of-function research by Chinese scientists, much of it funded in whole or part prior to the COVID-19 pandemic by National Institutes for Health (NIH) grants channeled through the EcoHealth Alliance medical research nonprofit.

The NIH has awarded seven grants totaling more than $4.1 million to EcoHealth to study various aspects of SARS, MERS, and other coronavirus diseases.

Buying Chinese Puppy Parts

As part of another U.S.-funded grant, hearts and other organs from 425 dogs in China were purchased for medical research.

These countryside dogs in China are part of the farmer’s household; they were mainly used for guarding. Their diet includes boiled rice, discarded raw food animal tissues, and whatever dogs can forage. These dogs were sold for food,” an NIH study uncovered by the Ernst researchers reads.

Other previously unreported grants exposed by the Ernst team include $1.6 million to Chinese companies from the federal government’s National School Lunch Program and $4.7 million for health insurance from a Russian company that was sanctioned by the United States in 2022 as a result of the invasion of Ukraine.

“It’s gravely concerning that Washington’s reckless spending has reached the point where nobody really knows where all tax dollars are going,” Ernst separately told The Epoch Times. “But I have the receipts, and I’m shining a light on this, so bureaucrats can no longer cover up their tracks, and taxpayers can know exactly what their hard-earned dollars are funding.”

The problem is that federal officials don’t rigorously track sub-awards made by initial grant recipients, according to the Iowa Republican. Such sub-awards are covered by a multitude of federal regulations that stipulate many conditions to ensure that the tax dollars are appropriately spent.

The GAO said in an April report that “limitations in sub-award data is a government-wide issue and not unique to U.S. funding to entities in China.”

GAO is currently examining the state of federal government-wide sub-award data as part of a separate review,” the report reads.

Peter Daszak, right, the president of the EcoHealth Alliance, is seen in Wuhan, China, on Feb. 3, 2021. (Hector Retamal/AFP via Getty Images)

The Eco-Health sub-awards to WIV illustrate the problem.

“Despite being required by law to make these receipts available to the public on the website, EcoHealth tried to cover its tracks by intentionally not disclosing the amounts of taxpayer money being paid to WIV, which went unnoticed for years,” Ernst said in the statement.

“I was able to determine that more than $490 million of taxpayer money was paid to organizations in China [in] the last five years. That’s ten times more than GAO’s estimate! Over $870 million was paid to entities in Russia during the same period!

Together that adds up to more than $1.3 billion paid to our adversaries. But again, these numbers still do not represent the total dollar amounts paid to institutions in China or Russia since those numbers are not tracked and the information that is being collected is incomplete.”

Adam Andrzejewski, founder and chairman of OTB, told The Epoch Times, “When following the money at the state and local level, the real corruption exists in the subcontractor payments. At the federal level, the existing system doesn’t even track many of those recipients.

“Without better reporting, agencies and appropriators don’t truly understand how tax dollars were used. We now know that taxpayer dollars are traded further downstream than originally realized with third- and fourth-tier recipients. These transactions need scrutiny. Requiring recipients to account for where and how they actually spend each dollar creates a record far better than agencies are capable of generating.”

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Tyler Durden Fri, 06/02/2023 - 19:40

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OraSure Technologies’ CFO Makes Bold Insider Purchase, Reigniting Investor Confidence

Executive Kenneth McGrath’s $500,000 buy read as promising signal about future for diagnostic test developer OraSure Technologies (NASDAQ:OSUR) saw…




Executive Kenneth McGrath’s $500,000 buy read as promising signal about future for diagnostic test developer

OraSure Technologies (NASDAQ:OSUR) saw a stock price re-rate on Thursday, climbing 11% after investors became aware of its CFO Kenneth McGrath buying shares in the diagnostic test developer.  This latest rally in OSUR stock, gives traders and investors hope that the strong momentum from the beginning of 2023 might return.

OSUR shares had mounted an impressive 54% rally for 2023 through to May 10, when the first-quarter results update spooked investors. 

The CFO’s trade was initially spotted on Fintel’s Insider Trading Tracker following the filing with the Securities and Exchange Commission.

Big Holdings Boost

In the Form 4 filing, McGrath, who assumed CFO duties in August 2022, disclosed buying 100,000 shares on May 30 in the approved trading window that was open post results.

McGrath on average paid $4.93 per share, giving the total transaction a value just shy of $500,000 and boosted his total share count ownership to 285,512 shares.

The chart below from the insider trading and analysis report for OSUR shows the share price performance and profit made from company officers in previous transactions:

OraSure Technologies

Prior to joining OraSure, McGrath had an impressive eight-year tenure at Quest Diagnostics (NYSE:DGX), where he rose to the position of VP of Finance before departing. This is the first time that the CFO has bought stock in the company since August 2022. It is also worth noting that the purchase followed strong Q1 financial results, which exceeded Street forecasts.

Revenue Doubles

In its recently published Q1 update, OraSure Technologies told investors that it generated a whopping 129% increase in revenue to $155 million, surpassing analyst expectations of around $123 million. 

Notably, the revenue growth was driven primarily by the success of OraSure’s COVID-19 products, which accounted for $118.4 million in revenue for the quarter and grew 282% over the previous year.

The surge in revenue for this product was largely driven by the federal government’s school testing program, which led to record test volumes. However, it is important to note that demand for InteliSwab is expected to decline in Q2 2023, prompting OraSure to scale down its COVID-19 production operations. As part of its broader strategy to consolidate manufacturing, the company plans to close an overseas production facility.

While the COVID-19 products division has been instrumental in OraSure’s recent success, its core business delivered stable flat sales of $36.6 million during the quarter. 

In terms of net income, OraSure achieved an impressive result of $27.2 million, or $0.37 per share, in Q1, marking a significant improvement compared to the loss of $19.9 million, or a loss of $0.28 per share, in the same period last year. This result exceeded consensus forecasts of $0.16 per share. As of the end of the quarter, the company held $112.4 million in cash and cash equivalents.

Looking ahead to Q2, OraSure has provided revenue guidance in the range of $62 to $67 million, reflecting the lower order activity from the US government with $25 to $30 million expected sales for InteliSwab. The declining Covid related sales have been a core driver of the share price weakness in recent weeks.

While sales are likely to fall in the coming quarters, one positive for the company is its low debt balance during this period of rising cash rates. The chart below from Fintels financial metrics and ratios page for OSUR shows the cash flow performance of the business over the last five years.

OraSure Technologies

Analyst Opinions

Stephen’s analyst Jacob Johnson thinks that outside of Covid, OSUR continues to execute on several cost and partnership initiatives which he believes appears to be bearing fruit. Johnson pointed out that three partnerships were signed during the quarter.

The analyst thinks that the ex-Covid growth story will be the new focus for investors from now on. The brokerage maintained its ‘equal-weight’ recommendation and $6.50 target price on the stock, matching Fintel’s consensus target price, suggesting OSUR stock could rise a further 29% in the next 12 months. 

The post OraSure Technologies’ CFO Makes Bold Insider Purchase, Reigniting Investor Confidence appeared first on Fintel.

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