Marty Zweig’s 1970 book “Winning on Wall Street” popularized the term “don’t fight the fed”. Today we have an environment where: (a) liquidity is contracting; and (b) rates are tightening. That’s not conducive for higher prices.
The Pendulum Swings
When things are going well and prices are high, investors rush to buy, forgetting all prudence. Then, when there’s chaos all around and assets are on the bargain counter, they lose all willingness to bear risk and rush to sell. And it will ever be so – Howard Marks
The Bull vs Bear Battle Lines are Drawn
The bulls have market momentum supported by solid breadth. We are past peak inflation (it would seem) which lends itself to a more dovish Fed (in theory). However, valuations are high – trading 18.5x forward. What’s more, the Fed is withdrawing liquidity – not adding to it. That’s an argument for the bears.
The “Everything Rally” as CPI Comes in at 8.5% YoY
The market has now rallied to a zone of potential resistance (4200 to 4400). The next few weeks will be a strong litmus test for market. My guess is we roll over…
For a full list of posts from 2017…