Buying stocks now could give you pain for the next few weeks. But you’ll be thanking yourself for it in a year’s time, these analysts say.

How bad is the mood out there right now? Try Max Bearish.

So said Tuesday’s latest Bank of America Fund Managers’ Survey, which showed expectations for earnings and growth at recessionary levels. But Wall Street rallied and more gains are on the cards for Wednesday, partly on earnings bullishness, but also because some are taking this whole gloom as a contrarian buy signal.

Finally, what if peak inflation and rate hikes are right around the corner?

It is not inconceivable that investors are currently overwhelmed as they try to gauge whether central banks’ fight against inflation will plunge economies into recession. Not to mention the potential impact of an economic downturn on corporate earnings.

Our call of the day Bernstein analysts Mark Diver and Sarah McCarthy say investors are facing a short-term pain-for-long-term gain moment for stocks.

“Our longer-term equity market sentiment indicators provide strong sentiment support and point to strongly positive global equity market returns over the next 12 months. Conversely, our short-term sentiment indicator, which operates over a four-week period, is only at neutral levels,” the pair said.

The divergence between these two suggests that investors can earn strong returns from current levels over a year or longer, but continue lower in the near term before reaching a tactical level of capitulation, Diver and McCarthy said.

They stated that their short-term sentiment indicator (4 weeks) remained neutral and there was no sign of a capitulation in equity fund outflows, except in Europe, where this had only just begun. Its longer-term indicator, meanwhile, is showing extremely bearish levels, suggesting upside potential for the 12-month plus perspective.

“Our indicator of cross-border equity flows is signaling extreme pessimism, at levels reached only four times since 1987, and followed by strong returns over the following 12 months,” they said.

Amber

Those four points in time were December 1987 with a 22.6% return a year later, October 2008 with a 28.6% return, October 2011 with a +8.8% return and March 2020 with a 55.2% return %. Bernstein analysts said they are not forecasting these types of returns, but that longer-term sentiment support should underpin positive returns over this 12-month time horizon.

Another plus for the long-term image. Global net issuance, based on buybacks and share issuance, shows record net demand for company shares, which should continue to support equities.

Buybacks started to rebound in 2021 after a 2020 collapse and are now rising sharply, driven by robust earnings and free cash flow generation, analysts said.

Read: News from this giant volcano suggests the global economy is deteriorating – and the US could be to blame

The Buzz

Netflix NFLX, +2.06%, is higher after the streaming video group said it lost 970,000 subscribers, fewer than feared, and said it would add more in the current quarter. Also, Netflix’s new crowd pleaser on Wall Street is free cash flow.

Tesla TSLA, +1.97% is the big gains name to watch after Wednesday’s close with expectations for a tough quarter. They are ahead of Biogen BIIB, -0.54%, Abbott Labs ABT, -2.23% and Baker Hughes BKR, -11.98%, with CSX CSX, -0.69% and Alcoa AA, -0.41%, who also report later.

Meta Platforms META, +1.25%, is being sued by installation art company Meta.is, which says the Facebook parent has violated its brand and ruined its business.

June Existing Home Sales are coming up.

Russian President Vladimir Putin said Moscow will restart the Nord Stream natural gas pipeline to Europe on Thursday, but said further restrictions could not be ruled out if sanctions halt additional maintenance work.

Elsewhere, a day before a European Central Bank meeting, Italian Prime Minister Mario Draghi said he would remain at his post if he wins a confidence vote later on Wednesday.

The markets

Stock futures ES00, +0.04% YM00, -0.01% NQ00, +0.11% rise as oil prices CL.1, -1.51% BRN00, -1.50% go the other way and bond yields TY00, +0.33% TMUBMUSD02Y, 3.200% remain stable, along with the dollar DXY, +0.04%. Bitcoin BTCUSD, +2.83% is higher, last changed hands at $23,758. Asian markets NIK, +2.67% HSI, +1.11% were boosted by these Wall Street gains.

The tickers

There were the most traded tickers on MarketWatch as of 6 a.m. Eastern:

Random Reading

One lucky UK ticket holder hit the biggest National Lottery jackpot ever – £195 million ($235 million).

Cats and humans are wild about the new video game Stray.

It’s National Hot Dog Day, get a dog for free or for five cents.

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