By Senad Karaahmetovic

Dan Niles is a portfolio manager and founder of the Satori Fund. He believes that the Fund could see a rally in the near term, even though the lowest lows have yet to come.

Niles noted that the S&P 500 staged 5 rallies during the GFC with these types of rallies generally retracing around 70% of the losses of the prior move lower.

“We currently still think the next 5%-10 move in the stock market is higher. CNN’s Fear and Greed Indicator currently has a reading of 11 on a scale of 0-100, which indicates extreme fear with 6 out of 7 of its individual components registering extreme fear,” Niles said in a regular market update.

Despite the belief that the S&P 500 could rally 5-10% from current levels, Niles believes the next 10-15% move in the stock market is lower. In the event of inflation exceeding 3%, Niles stated that the benchmark index may drop by 30-50% between peak and through.

“Inflation (CPI) over 5% has preceded a recession every time. Now, it is over 8%. A recession has always preceded oil prices that have doubled relative to their prior 2-year average of $54. One time oil prices exceeded $120, and it is currently at $110. Ten of the previous 13 recessions were preceded by tightening cycles by the Fed. The Fed will tighten rates to closer to 4% once the tightening cycles is finished, as opposed only 1% at today’s high end. The 10-year yield has been below the 2-year yield in 10 of the 13 previous recessions. This occurred on 4/1/22 and was -7 bps,” Niles added.

Niles urged clients to focus on “capital preservation and steady performance” before an “incredible buying opportunity” will emerge “at some point in 2023.”