“Davidson” submits:
There is a gradual thawing of the pessimism that has wracked equity prices since the end of 2021. The important economic trends continued to trend higher despite most investors expecting a recession that has not occurred and not likely to occur near term. Retail investors whose information mostly comes from the large firms and the media have record cash levels.
The last 2yrs has been a lesson in how much psychology drives markets vs economics. Nearly all the advisors, and I do mean “NEARLY ALL”, speak as if they are following fundamentals. Clearly, no one wants to be wrong and out of sync with market performance or they have a high risk of being out of work. The media needs to attract viewership and sell advertising which leads to reinforcement of the current themes of the moment. This clashes with the best investment practice, little in the public eye during recent times, of buying during the depths of pessimism. Warren Buffett does this but he is longer-term (which all investors should be) and not a frequent media speaker. Warren has never worried about being out of sync with current thinking. His success has never left him worried about losing his ‘job’.
There are finally cracks forming in the EV space and the ‘Global Warming’ fears driving much of recent investment activity. The industries basic to economic growth are finally emerging as still as important as they have ever been. The recent inflation data has quelled the fear of Fed rate hikes and the SP500 lifting over $4,400 has been a magical indicator of a better economy in some quarters. My own analysis indicates the US economy has been on a steady uptrend since Apr 2020 and that the Fed has had little influence on rates despite the majority opinion. I learned long ago, the majority opinion rarely has a positive investment outcome.
Besides governments shooting themselves and investors in the foot without critical thinking (the COVID crisis), economic growth indicators are relatively simple to track. That recessions “have always been impossible” to predict defies the basic signals we have had for many decades. Recessions occur when employment and retail sales have slowed AND businesses, investors and homeowners have borrowed so much that delinquencies rise above certain levels for various lending categories. A single unexpected event can topple banks into pulling back on credit extension to over-extended borrowers. It is as simple as that. Recessions occur on the lending pull-back induced by an unexpected bout of fear The event is always unpredictable, but the tenuous delinquency rate has predictability to which we should pay attention. The next report, late this month, is quarterly, should be higher but not threatening. To get to those levels that create financial instability is still 2years-3years away. At the moment employment and Real Retail Sales continue to be in uptrends. Real Personal Income has flattened, but it is keeping up with inflation. That is what flattening means for this measure. Market fears of a recession has led to some interesting hedge activity. Some has been manipulative in my opinion. All of the hedging shows signs of easing.
If current trends continue, you will hear of a “new Bull Market” in a couple of weeks. By my analysis, we have been in a positive environment since Apr 2020 but many believed price trends over economic trends.