The stock market keeps going up, in defiance of stock market bears and even hedge funds that are now betting against the stock market. Check out this Tweet by Liz Ann Sonders.
Hedge funds have been bearish on S&P 500 for quite some time, but even more so over past few weeks as net short positions for futures have increased pic.twitter.com/Aa7KrqeN2m
— Liz Ann Sonders (@LizAnnSonders) January 23, 2023
Some, no doubt, are blaming this rally on short squeezes, because they don’t want to believe it’s real. They may be permabears or people just not invested enough in the markets and missing out.
I know that it doesn’t seem like the market should be going up when there is now so much uncertainty about the US economy, but it is. In reality, though, markets around the world, and gold and silver, turned up last year, and the Nasdaq and S&P 500 are just following suit, lagging behind. Markets price in news BEFORE it happens and economic conditions before they hit. So, when the market had a vicious bear market last year it priced in the recession everyone is saying is going to happen ahead of time.
When everything seems certain and people tell you it is easy to make money in stocks that is when there is a top. You last saw that type of talk everywhere in January of 2021 when they were talking about meme stocks on prime time news. Both Tucker Carlson and the MSNBC lady were telling people meme stocks symbolized the Robinhood trader becoming king of the markets. In reality, the people buying into that story were the last buyers of the last bull market.
Maybe the reason the market is going up now is because there is still more and more liquidity going into the market. While inflation hurts, there are still a lot of people with a lot of savings and the Federal Reserve Fed Funds rate is still below the most recent annualized CPI inflation rate.
Money has to go somewhere and in a market like this price action rules.
It doesn’t do any good to make decisions based on fears of recession, when the market already fell last year in one of the worst bear market years you have ever seen. Ten months ago they were telling us that Europe was going to have an energy crisis in winter time. Now winter time has come and there is no energy crisis there.
There are indeed pockets of recession. Real estate has been falling off of its highs for over six months, and just look at the layoffs coming from the big tech companies in San Francisco, but there are also signs of excess money flowing all over the economy. On Monday the giant Caesars Entertainment casino company did a filing with the SEC, in which it upgraded its revenue estimates for its most recent quarter. They are expecting an 8% jump in quarterly revenue from the way that quarter played out for them in 2021. The CZR stock jumped on the news.
I own shares of CZR, but most of the other casino stocks jumped in sympathy with this news as the entire sector rallied. It’s been one of the top performing sectors in the stock market since Labor Day. Check out, for example, shares of MGM Resorts International.
Casino revenues are growing. The people going to them somehow have more money to spend.
If there are people who are in a position to spend more money in casinos then there are people who have the ability to put more money into the stock market.
Trying to predict the path of the economy is not a way to invest or trade.
What is left?
Price action strategies, as I talk about in this video update.
And consider this your quote of the day:
“This is the first time in the past 50 years that the S&P 500 has lagged behind gold coming off a market bottom … The precious metal has awakened in the past three months, quietly outperforming stocks since their mid-October lows. That’s something that hasn’t happened in the half-century since the Bretton Woods monetary regime ended.”
“Up & Down Wall Street” Barron’s (Print Edition) January 23, 2023
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-Mike
