Fire and Ice

It's not so pretty 
When it fades away
'Cause it's just an illusion
In this passion play
--Pat Benatar

Morgan Stanley (MS) equity strategist Michael Wilson discusses his 'fire and ice' thesis. The 'fire' part relates to inflation. Inflation has surprised to the upside, causing the Fed to pivot and become committed to taming the inflationary flame (like ZH, these pages disagree with idea that the Fed is now committed to hawkish policy).

The 'ice' part is slowing growth, as the pandemic winds down and extraordinary fiscal and monetary stimulus is retracted. Wilson believes that stocks are sniffing that out.

Nice supporting graphic of the 'ice' part showing the YOY % change in monthly Purchasing Manager's Index (PMI) correlated and leading the SPX in this regard. 

Incidently, the commonly held 'line in the sand' w.r.t. the PMI is 50. Lower than 50 suggests contraction of the manufacturing sector. The chart above show where 50ish would fall with continued monthly declines. 

Straightforward to do the math estimating what that means for the SPX.