It was more a case of range trading, but markets closed higher in New York again last night.
The headlines were able to claim an 11th day of gains, though actual new price highs have not been seen for several days now.
The pattern of the year has been for the market to rally into every Fed rate hike. The opposite of old world trading patterns, but there you have it, the new world of just too much money to invest forever driving expectations higher.
Economic data around the world continued to darken significantly, including the US scene, but nothing it would seem can stop the buying.
Eurozone Services Sector growth slowed to a 6-month low. UK Private Sector Growth eased to a 6-month low and continues to roll-over. The US Chicago Fed National Activity Index fell further into contraction territory. The US SP500 Global PMI Index also continued to display that worrying rollover.
Nothing though, could stop the sentimental hopes of the last great Fed hike. It may well be the case that despite my expected rather hawkish overall commentary by the Fed, markets will just interpret whatever is said however they wish.
When the Fed was telegraphing clearly, early on in the cycle, that rates were going much higher for longer than the market assessed, the market commentaries of the time simply dismissed that clear projection. We may see the same spin process again this week?
Perhaps, for a decline of any kind to eventuate the market will need to see disappointing earnings with disappointing projections as well. This may be too much for the bears to hope for.
It is the case, amusingly, that the bulls have got everything wrong. Inflation was not transitory. There has been no pivot. Only higher rates. The economy has continued to slow. Russia did invade and there is an on-going entrenched war in Europe with risk of escalation persisting. Corporate earnings have fallen back.
Basically, all the fundamental forecasts of the bulls were wrong, but they have made money anyway. The great weight of excess Covid-liquidity, continued, massively 30% higher than pre-Covid, US government spending continues to find its way into the hands of the big corporations, banks and fund managers.
They simply have so much new funding hitting their desk every month they have to keep buying. The selection process has greatly narrowed however, to the big 7 favourites. Herein lay the Achilles heel of this bull trend.
At some point, it will be a race to the bottom to take profits and preserve capital. For the underpinnings of even the biggest of the big is beginning to be eroded by the malaise that is very real down there in the distance on Main Street USA, and across Europe. The overall economic decline may not have hit the wealthy set just yet, but there is very real risk of it doing so in the not-too-distant future.
The view here, is to continue to respect, and even enjoy the current upward momentum of the market, while maintaining a very staunch vigil on any signs of price action reversal.
This remains an extremely important and pivotal week for markets overall. Likely to determine the further 3-6 month outlook. If the market survives any surprises this week, there is likely to be a wave of fresh buying yet again.
This could be the last week the bulls are really tested. Yet, tested they may well be. Watch for the Fed’s post hike comments and earnings outcomes.
Market commentary and analysis from Clifford Bennett, chief economist at ACY Securities
