A rare bullish trifecta

Happy hump day, readers.?I'm senior reporter Phil Rosen. I'm not yet back in Manhattan, but Wall Street banks have been sounding the alarm loud enough over the last week for me to hear them from Los Angeles.?

On Tuesday,?Goldman Sachs ?posted its worst earnings miss in a decade, while?Morgan Stanley ?topped expectations but signaled that it's preparing for a recession.?

Last week's cadre — JPMorgan, Bank of America, Wells Fargo and Citigroup — posted mixed results, but together gave a bleak prognosis for what comes next. The banks said they're putting aside funds to cushion themselves for a rocky 2023.?

And that institutional trepidation is shared by the wider market, it seems.

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1. There is little optimism for stocks among Wall Street's foot soldiers, according to the latest fund manager survey from Bank of America. Even as recession worries show signs of easing,?investors remain bearish .?

Strategists said asset allocators remain?overweight on cash and bonds , and are currently the most underweight on US stocks since October 2005.?

Remember, traders pile into cash and bonds during uncertain times. It's a way to minimize risk.?

And after last year's S&P 500 bloodbath, that reasoning seems straightforward — but the data is still somewhat misaligned with?declining expectations of a recession .?

(To be fair, 68% still anticipate a downturn).

As?BofA pointed out , that means the so-called "pain trade" in the stock market is higher, and any sudden rally would catch investors off-guard.?

All that together has made "long stocks" the runaway contrarian bet of 2023, in the firm's view: "Note prior peaks in recession fear were big turning points in asset prices."

Maybe more interesting but less surprising?is that investors are extremely bullish on Chinese stocks. As the world's second largest economy?rejoins the fore , investors haven't been this optimistic on mainland equities in 16 years, BofA's survey showed.

But Wall Street survey be damned, stocks seem to be on the brink of a rare,?bullish trifecta .?

At least that's what Carson Group's Ryan Detrick thinks.?

When the S&P 500 generates positive returns?during three specific overlapping periods to start a year,?markets rally 90% of the time , he explained.?

This has happened 31 times since 1950, but the real rarity is for the market to pull this off coming out of a down year like 2022. In that case, the hat trick has only been seen nine times since 1950, with an average return of 27%.?

"There are still many worries out there," Detrick said, "but we continue to see more positives than negatives, and we think 2023 could actually be quite a good year for investors."?

Are you investing in Chinese stocks this year??Let us know in the comments.

2. These 33 stocks will benefit the most from falling inflation, according to Credit Suisse.?The company believes that this batch of names will outperform even if earnings more broadly see declines.?Here's the full list.

3. This 28-year-old owns 42 cash-flowing properties.?He broke down how he plans to grow his portfolio in the new year —?and shared six tips to get ahead including the type of mortgage to secure.

4. Goldman Sachs laid out its strategy for profiting with stocks, bonds, and options in 2023.?The year ahead will be rocky and uncertain, but the firm's top analysts said it should still be a solid year in markets.?Here's why they don't think investors should make any big strategy changes.

5. Bitcoin has rallied as much as 22% in a week.?The surge has pushed the world's most largest crypto token to levels not seen since before the fall of FTX.?Crypto's total market cap also topped $1 trillion again.

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This newsletter was curated by Phil Rosen.