A lower-than-expected consumer price index pushed the indexes higher once again. Like the recent jobs news that the market celebrated recently, there are some negatives in the data, but this is a market in which all news is good news. The main reason that this is occurring is that skepticism is so strong that market players continue to be poorly positioned.
It is counterintuitive that we can have a roaring bull market at the same time that inflation is running at the highest level in 40 years, the Fed is hawkish, and there is concern about a potential recession. The negatives are painfully obvious, but the market is running hot and forcing those who think the action is illogical to add long exposure. It is a form of climbing the wall of worry, and the longer it continues, the more it is driven by fear of missing out.
This was impressive strength Wednesday, with around 6,900 stocks gaining to just 1,340 declining. We still only have a little over 100 stocks hitting new 12-month highs, but the momentum is extremely strong, and it keeps squeezing bears that are confident that this is just a very energetic counter-trend rally.
One of the main reasons that this market is so strong is because it is not a bull market, so there are few folks prepared for it. They are holding higher levels of cash and are hesitant to chase, but they are being forced to do some incremental buying.
It is interesting to note that bonds did not celebrate the decline in the consumer price index. Yields were higher, and there still are expectations that the Fed will issue a series of hikes. It doesn’t matter because to equities, because of the poor positioning.
The question is whether the market is going to embrace the economic worries once again. We are in the worst time of the year seasonally, and there is no shortage of negatives, but stocks are in a frenzy right now. All we can do is try to stay with them the best we can and not be in a rush to try to call a turn.
Have a good evening. I’ll see you tomorrow.