These advisers say markets are expecting unrealistic outcomes. Here are some alternatives.

Our call of the day takes a break from Wall Street banks to eavesdrop on a pair of money managers who are looking across markets and spotting oddities and opportunities.

First up is Unlimited co-founder and CEO Bob Elliott, who was a former member of Bridgewater’s investment committee. His company uses AI to track fast-money strategies and create low-cost hedge-fund replica ETFs for average investors, like the Unlimited HFND Multi-Strategy Return Tracker ETF
HFND,
which has admittedly had a choppy year.

Elliott first lays out the order of what investors need to be thinking of when it comes to how the economy and market should play out. So inflation will at some point reach the Fed’s target, but first comes recession, he says.

“The issue that the early pivoteers keep confusing is that there’s an order to that. First the bond yields have to rise, then the stocks go down, then the economy weakens, and then we get inflation back to target,” Elliot told Real Vision in an interview that published on Thursday.

“So if you buy bonds today while the economy is still hot because you think that there will eventually be a recession, that’s out of order…or even worse, all those people buying stocks today. People are buying stocks today like ‘The Fed’s gonna pivot.’ But… the Fed pivots under conditions where economic activity is weak,” he says.

Sitting beside him is Andy Constan, founder and CEO of Damped Spring Advisors, a multistrategy hedge fund, who also talks of a “fascinating market,” and things that don’t make sense.

He sees two reasons for this: an expectation the Fed will bail out markets and or overly optimistic expectations of that just-right soft landing for the economy — inflation magically returns to target without big job losses or earnings hits.

And said things do look OK right now, softer earnings, jobless rate ticking up, growth slowing, so now “we have to just plateau and land,” said Constan.

Elliott notes that making good trades in markets is about “finding the situation where the probability of one outcome is higher or lower than consensus. Right now it’s very strong earnings growth — double digit for the next two years — 2% inflation forever, real interest rates at 2.5%, oil prices at all time lows,” he says.

“The cross-asset views are all in on a soft landing, that we will achieve the single perfect soft landing. That is certainly possible, but the question is is the probability 100% and the answer is no, not close to it,” said Elliott.

He sees bonds and stocks as “totally out of whack with each other,” right now, while many obsess over bond yields. “Are bond yields going to peak at 4.5% or 5% or 5.5%? Who cares? They’re down 50% and stocks haven’t hardly moved at the aggregate level. If you want to find an asset that’s radically overpriced right now it sure isn’t bonds,” said Elliott.

Constan notes a mismatch over earnings expectations are 12% growth for the next two years. He first thought it was AI and the Magnificent 7 would create all the earnings growth, but he said that’s just not true. Even with high-consensus earnings for those, all the other 493 have to have some growth as well, he says.

Now toss in recent strong gross domestic product data and that that 12% growth may happen, but if it does, “bonds are something you cannot possibly invest in at that level. To me it’s really about bonds vs. stocks.” And Constan says he’s not choosing.

Elliott says if you’re an investor who does like growth conditions, he sees commodities as cheap, notably December 2024 oil
CLZ24,
+0.24%
cheap versus stocks. “If you think that growth boom is going to continue, that looks pretty compelling,” he said.

Constan said he’d look outside the U.S., and the most interesting economy is Japan, which still has “fiscal and significant monetary stimulus,” and while they are making small steps to be less easy, that means depreciating yen and conditions for equities hedged into dollars very attractive.

And while some U.S. investors at times struggle to look beyond American shores, the Nikkei 225
JP:NIK
has surged 28% this year, making for one of the world’s best performing stock markets. Warren Buffett’s Berkshire Hathaway
BRK.A,
-0.54%

BRK.B,
-0.38%
got a piece of that action this year — along with any savvy investors — when he upped stakes in five of Japanese banks — Mitsubishi
8058,
-0.65%,
Itochu
8001,
-1.09%,
Marubeni
8002,
+0.52%,
Sumitomo
8053,
-0.90%
and Mitsui
8031,
+0.95%.

Read: Favoring 5% savings accounts and CDs over stocks now? Think again.

The markets

Stock futures
ES00,
+0.24%

YM00,
+0.50%

NQ00,
+0.27%
are higher, as bond yields
BX:TMUBMUSD10Y

BX:TMUBMUSD02Y
mostly hold steady. Crude prices
CL.1,
+0.68%

BRN00,
+0.68%
are up as the OPEC+ meeting kicks off. And gold’s
GC00,
-0.46%
4-day positive streak, looks to have hit a wall, with the price off 0.5%.

The buzz

In the 8:30 a.m. spotlight is the Fed’s preferred inflation gauge, the personal-consumption expenditures index (PCE), alongside personal income and weekly jobless claims. New York Fed President John Williams at 9:05 a.m. Pending home sales are due at 10 a.m.

Kroger
KR,
-0.64%
will report earnings ahead of the open, and Ulta Beauty
ULTA,
+0.49%
after the close.

A bevvy of software stocks are jumping. Salesforce shares
CRM,
+2.41%
are soaring after upbeat results, Snowflake
SNOW,
+2.20%
is climbing on blowout results and forecast, with Nutanix stock
NTNX,
+2.59%
also jumping on strong earnings. Pure Storage
PSTG,
+5.74%
is tanking after the tech group’s guidance fell short.

Elon Musk says advertisers like Disney
DIS,

could “kill the company” by ad boycotts over his apparent endorsement of an antisemitic post, for which he apologized. X CEO Linda Yaccarino said the interview was “wide-ranging and candid.”

Sam Altman says his return to OpenAI as CEO is now official, with investor Microsoft
MSFT,
-1.01%
getting a nonvoting seat on the board.

Former secretary of state Henry Kissinger has died at 100.

Best of the web

China investment bank bans bearish research.

United Nations’ climate group warns of hottest year ever.

Why Robinhood wants British customers.

Quote of the day

“Nothing says ‘let’s save the planet’ like a summit led by a big oil CEO,” says Ipek Ozkardeskaya, senior analyst at Swissquote Bank. The irony of 70,000 people headed to Dubai for the COP23 summit, which will be led by Abu Dhabi National Oil’s CEO a company “that can survive only by keeping carbon emissions where they are.”

The tickers

These were the top tickers on MarketWatch as of 6 a.m.:

Random reads

Paddington Bear. Here, there and everywhere.

New York’s Central Park has doubled a previous no-snow record.

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