A mood of capitulation perpetuated technicians or pundits Monday, setting up the prospects of a washout and rebound, even if just an S&P snap-back. A discussion of 'peak inflation' as the backdrop prevailed on Tuesday during the rebound, however there's scant evidence of inflation rolling-over 'as of yet'.

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For sure that's on the menu, and lower shipping costs as well as just some of the commodity prices, have hinted at that forthcoming. But the keys remain of course Oil, which rebounded on issues related to not just Russia, but OPEC.

The 'Yield Curve' inverted, inflation has been rampant for awhile, commodities are up but often stretched, demand is challenged, and everyone is aware of a slew of issues, including the China-COVID-strangulation of many supply chains.

'Dont' find the Fed' has been our mantra for at least 6 months, warning for say a year or more about distribution under-cover of an artificially supported S&P, and now some argue 'this time isn't different'. No it's not, that's why the peaks internally were last year not this year. Bears calls for disaster, while largely we view that as behind especially for innovative small-caps previously cratered.

Meanwhile Bulls talk about time horizons or how recession isn't until next year (and it might be), however they view this as a the same old cycle and we don't see it that way. I maintain (for now) bias that -for S&P- this is an intermediate correction within a longer cycle dating from our 'Inger Bottom' March 2020 low and that corrective behavior began internally well over a year ago now.

In this environment, we think some of the 'defensive' stocks many promote for the moment are ok, but I suspect we'll rotate back to growth, technology plus a handful of innovative disruptive stocks, which will take time to evolve. Just as was the case in 'prior generations' of markets, the technology winners next year won't likely be the same ones that 'got the market to the ball' so to speak while at the same time the major mega-caps will rebound. Percentages will be better in those speculative stocks that mature during the next cycle. Since we don't know which ones will be 'winners', there's suggested sprinkling of a few.

In a sense this situation starts to remind me (especially if we want to view the numerous candidates in EV cars & trucks and even delivery vehicles, battery companies and so on) .. of the earlier days of the Automobile Industry itself. A hundred years or more ago, there was a guy name Louis Chevrolet, also few are old enough to recall Harry Olds, or Sam Buick, or Pontiac (Indians), but (and forgive me if I got the names wrong just as I did the 'state COVID data' last night.. didn't research that chart sufficiently as I just don't have time right now) .. but I think it was Charlie Wilson who constructed General Motors from the formerly independent car makers that were generally struggling.

So I have no idea if Canoo will succeed independently, much less Lucid or a Mullen, or the others like very speculative REE Automotive, but there will be winners in the field, and beyond Tesla (which incidentally has issues in China currently). Our 'sprinkling' includes marginal bets like Romeo Power .. but in the 1.40 area, a spec gamble. It does nothing for those who paid 20-30 times that price last year, but we never touched it until now. Will it succeed? No idea but new leadership and completed California facilities won't hurt its chances. If I had to single-out one that should succeed (but might suffer dilution first) it would be a 'healthcare device' component innovator, Rockley Photonoics.

But even there I hear Apple won't be ready for Apple Watch to have abilities like 'continuous blood pressure sensing' until 2024, rather than 2023 (certainly not this year). Is it the same for glucose? Don't know. But blood pressure on a continuous basis would be amazing and very much in demand (cuffless?). I suspected already the first 'clinic on a wrist' commercial device will launch via Medtronic sooner, though it might require device recognition by FDA, again unsure. I do know that they have announced the partnership to 'go forward'.

In-sum: 

The high level of inflation continues eroding purchasing power, while a few hints of inflation 'peaking' aren't terribly evident, and may only signify a plateauing of inflation at a high level, at least for now. It's all still sensitive, not just to Fed moves, but also how goes the war, and China's COVID situation.

The Fed really doesn't have real tools to impact much of this inflation, while of course their rate and Balance Sheet moves do reduce consumer spending as well as overall economic demand. As to China, they are actually experiencing a rare wave of social anxiety and anger directed to their draconian policies of handling COVID. Today we heard what I suspected: they do not even have the mRNA vaccines, theirs is based on another approach is isn't very protective.

It's a difficult and challenging time. It's filled with alternate opinions on stocks, inflation, politics, even the war. And nobody talks much about OPEC souring on the U.S. over Iran, and producing 'less' than their own target levels, sort of a protest against the U.S. going forward (seemingly) with an Iran nuclear deal, and withdrawing much support for the Saudi campaign against Yemeni rebels.

There will be a payback over time to adjust the inflationary surge, but much of it is now institutionalized or 'embedded' in-society, and won't come out. That's especially so when it comes to wages and services, and as noted for a year. It matters that this has been 'trending' toward higher costs, it began with wages, persisted with Oil prices, and that moved to transportation/shipping rises well before 'Putin's war', which definitely put more upward pressure on prices too.

I keep hearing pundits talk of 'late cycle behavior' but again it depends where one looks. If inflation sticks, that's not priced-into the overvalued big-caps, but if the war ends and/or Oil breaks hard, the script for this market shifts quickly.

As I'd mentioned at times, the overall inflation pace 'in real life' has been rising pretty consistently for over a year, despite the irrelevant protests by the Fed of trying 'to get it up to 2%'. That's why I used to contend be careful what they're looking for as they'll get more than they bargained for, and they sure did. Now you have crashed speculative stocks, and struggling big-cap stocks (dividend plays or not) which managers have sough to 'hide for safety' in. Also lower.

The pendulum will swing again. It might start with Oil, but that depends on any number of factors: Russia, Iran, nuclear deal or not, OPEC break with the EU and U.S. (they can't afford to, but they feel more empowered during the war), and so on. It's not just demand, but there you'd have to factor-in China too.

Energy stocks 'may' grind higher from here (I own some, so that's fine), but I'd not be chasing them here... too obvious and not the same as merely holding a position from a year ago, or even earlier. S&P will like try yet-again.