Oftentimes fairness markets really feel like a coin flip however proper now, it is a heads-I-win, tails-you-lose type of sport.
The factor is, I agree with it as a result of these are the 2 most-likely paths from right here:
1) Development surprises to the upside
On the finish of the day, progress is nice. Shopper spending is by far the driving pressure of the US economic system and most US owners are nonetheless flush with cash from mounted 30-year mortgages and safe jobs which might be paying higher than ever earlier than. Corporations went into 2023 cautious on recession fears however they could start to speculate once more whereas persevering with to see productiveness enhancements from AI.
2) Development falters
Rates of interest are undefeated as a choke on financial progress. It isn’t a great time to borrow cash and banks are struggling underneath the burden of the busting workplace and business actual property market. Automobile gross sales have slowed and will proceed to remain subdued as a consequence of excessive financing charges. World demand can be sinking, hurting US exports. Nonetheless there is a treatment for all of this: If progress disappoints, the Fed can minimize charges.
It is a basic case of the Fed put.
The one state of affairs the place it actually goes unsuitable is in a re-acceleration of inflation as progress slows down. That is definitely a tail danger nevertheless it’s a 5% likelihood at finest, particularly with the US prone to import disinflation from overseas.
The next likelihood — I imagine — is that progress surprises to the upside however inflation additionally surprises to the draw back. That may be an absolute Goldilocks state of affairs and you’ll see it taking part in out right now with oil down $1.30 (and $7 since final Friday).
Wanting on the fairness image, tech is wanting prefer it might go super-nova. Fund mangers and people are clearly chasing mega-cap tech right here as a result of … what different commerce is there? When you do not personal one of many Magazine 7 (6?), you will have little likelihood of matching the index. Among the valuations are exhausting to justify however when has that ever stopped an fairness market rally?
I am clearly not breaking any floor right here because the market (and me) figured this out awhile in the past nevertheless it’s such a compelling backdrop that it is the type of factor that would spark an enormous overshoot.
