It’s the rally everyone loves to hate. Why? Because very few got it right. Most fund managers missed this rally entirely… thinking it was only a matter of time before things collapsed. The thing is – they haven’t. I will admit – I also got this wrong. My initial target at the start of the year was 4200. If that broke – I was looking at resistance around 4500. The S&P 500 now trades 4536 – making me look foolish (and it won’t be the last time I am sure). We’re now just past the mid-point of the year – with the S&P 500 up 18.2% YTD. Remarkable by any measure. What are Wall St saying about the second half?
"Macro / Economy"
Can Consumers Continue to ‘Shop ’til they Drop’?
Never underestimate the US consumer’s willingness to spend. And from mine, that’s been the story of this year. Consumers have used whatever means available to spend, spend, spend. With ~70% of US GDP consumption based – that has also meant the economy managed to keep its head above water. But what does it look like going forward?Do consumers still have ultra-strong balance sheets to keep it up? And are rates eventually going to bite? I ask this because if US consumers are closer to maxing out their credit cards (with more than $1T in debt)… the odds of a recession sharply increase.
Hints of Mid-2007
It’s been said that whilst history doesn’t repeat – it often rhymes. For me, 2023 offers some parallels to 2007. To be clear, things are not exactly the same (they rarely are) – however I will demonstrate some similarities. What’s more, I continue to remain long this market (with about 65% exposure). That said, if I’m correct (and I may not be) – it could raise a ‘red flag’ for 2024. Three things (1) fed monetary tightening takes between 12 and 24 months to make its full impact; (2) the economy also looked very strong into Q4 2007; and (3) sustained inverted yield curve cause recessions. In my view – the market is losing sight of the fact of how long the lag effect can be.
Bulls & Bears Can Make a Solid Case
It’s fair to say this is one of the more hated stock market rallies. Why? Rarely have I seen so many caught on the wrong side of the trade. Sentiment is overwhelmingly negative. And yet the S&P 500 is up ~20% from its October low. This missive outlines both the bull and bear case. Either side can make valid arguments. This is what makes things so interesting. In short, you must have exposure to this market. However, you should do so with your eyes wide open.
For a full list of posts from 2017…