As I wrote in last week’s commentary, the stock market (SPY) is a complicated place to be right now.
There are a handful of potentially positive signs (the recent rally, some important earnings surprises, softening inflation numbers), but there are also still a number of potentially negative signs (more big layoff announcements, some key earnings misses, a hawkish Fed).
If you look at the broad market indexes, the bulls appear to be winning this tug-of-war game.
And I think that’s because they’ve convinced themselves that the negative has already been priced into stocks.
And as much as I want to be optimistic (and I can’t ignore those green shoots!)… that’s a dangerous place to be investing from.
If this rally is based on the assumption that the negative is already priced in, then…
1) We’ll need some other positive news if we want stocks to continue higher.
2) Everyone is in for a very unpleasant surprise if it turns out the negative wasn’t priced in.
In that second scenario…
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