“Clouds are not spheres, mountains are not cones, coastlines are not circles, and bark is not smooth, nor does lightning travel in a straight line.”
The following series of briefings aims to consolidate key developments on the relevant themes and topics we cover since our last update before the holidays.
Rosenberg (Finally) Capitulates, But Does It Mean Anything?
Most of the sell-side 2025 macro market outlooks were published and distributed to clients in November. As expected, the Federal Reserve cut interest rates by 25 basis points (bps) at its final meeting of the year. Meanwhile, the last bearish holdout from the Wall Street establishment, David Rosenberg, delivered the coup de grâce to markets by capitulating just as the marginal buyer of stocks wrapped up for the year. Sometimes, that's just the way the cookie crumbles.
As is often the case, the price action will create the investment thesis from henceforth even if the underlying fundamentals remain the same. When Wall Street veterans make rookie mistakes in public it never ceases to provide us with cheap entertainment.
Watching seasoned market veterans make rookie mistakes in the dawn of their careers—caught fighting the waves instead of riding them—offers a certain kind of cheap entertainment. Regardless of experience levels, the collective wisdom of markets never fails to psychoanalyze its participants, probing known vulnerabilities and occasionally exposing new ones. At Rosenberg's level of seniority and experience, however, one would expect that friends, clients, or even subordinates would feel empowered to step in and remove the metaphorical python slowly tightening around his neck—before it causes serious harm. And boy, over the past year, the market has certainly taken its toll on some overblown reputations.
With that said, and as we emphasized around this time last year, the notion that the capitulation of influential market commentators serves as a reliable or meaningful reverse indicator of longer-term trends is a myth—most often perpetuated by those who find themselves on the wrong side of a trade and have yet to reconcile with reality. Those who adjust their stance after being on the right side of the move tend to be a bit more dependable—they're more likely to be in a healthier state of mind. More often than not, it’s simply a case of pattern over-matching or uncoordinated groupthink (yes, we can all be unique and original in the same exact ways if we live in small bubbles), if not market transactions clearing to reflect an updated investment thesis.
Most of the time, market research highlights similarities to build a compelling case but omits crucial differences that could undermine or invalidate the thesis. You don't want to ignore the differences between these two:
Rating The Analysts
A year ago, we observed a similar scenario when Mike Wilson at Morgan Stanley finally abandoned a longstanding bearish stance on U.S. equities and switched to a very bullish outlook. At the time, many interpreted this as a signal of a market top. Now, 25% higher on the S&P 500, it doesn't seem like such a bad call if he stuck with it throughout 2024. In our view, however, it was simply time to shift Wilson’s rating as an analyst from UNDERWEIGHT to NEUTRAL—see first update of 2024: SURVEY Matrix | Upgrading Wilson to NEUTRAL from Underweight. We stand by that assessment—over longer time horizons, most analysts, Wilson included, are no better than a coin toss at predicting markets.
The rest boils down to analysts crafting compelling narratives that fit historical price movements, appeasing either fickle or schizophrenic clients, and optimizing for the “heads I win, tails you lose” incentive structures that is customary in the world of finance. In the case of Wilson, between mid-2021 to mid-2022, the customers were in awe of him and wanted to have his babies, while he was spewing nonsense because the market went his way. The next 18 months he gave them false hope. And for the last 12-18 months, Wilson has been ridiculed for everything he says, regardless of the merits. In short, the underlying problem lies with the customers. Wall Street merely creates the product they desire at that moment to keep the cogs turning with varying degrees of success.
When Data Science Becomes The Science
In any case, despite our criticisms of the Rosenbergs and Wilsons of the world, in an era dominated by highly data-dependent, serial flip-floppers, we still value the wisdom and experience these stubborn, post-truth, old horses bring to the table. Their popularity endures precisely because data science, unfortunately, has shifted from being a supplementary tool for experts to being regarded as the science itself.
It's never personal; if it were, we wouldn’t address it in our posts. Comments and rebuttals are always welcome and encouraged.
