The New York region manufacturing sector appears to be in complete free fall at the moment, but this didn’t stop the Wall Street fund managers from continuing to aggressively buy stocks.
It doesn’t seem to matter what the news is, there is just a huge appetite to buy stocks. And to keep buying.
Reminds me of an old adage, it always looks best at the top.
There is no argument with the spate of negative economic data sweeping the world at the moment. This is by far the worst economic matrix across the globe seen in a generation.
Stocks did sell off heavily in the first half of the year, but there has certainly been a turnaround of late. Is this the big historic up-trend since 2009 re-starting, or as many agree with me, a bear market rally trap?
So far, the bulls are right.
Their fundamental argument hinges on the idea that the worst of the economic slowdown and the hiking of rates by the US Federal Reserve has already been fully priced. It is hard to argue with such a proposition. A kind of how long is a piece of string situation.
My reason for ongoing bearish equity market warnings is that the USA, China and European slowdowns have not at all been fully priced for they will get far worse than the mainstream commentary has anticipated.
It is also my belief that both the Federal Reserve and the RBA here in Australia will continue to tighten rates in a war on inflation they simply cannot win.
Inflation will be determined almost entirely by the fluctuations in energy prices from here on. The big risk is a race between nations to increase stockpiles and reserves.
The world is still sliding down and no one knows where the bottom is.
Talk of the bottom having already been priced in seems somewhat premature.
Should the market turn down again after all this long positioning, it will fall with a thunderous impact. Buyers beware.
Market insights and analysis from Clifford Bennett, Chief Economist at ACY Securities
