Rally Rolls On - For those of you who read my rants every day, first of all, thank you. Second, some of you might describe me as somewhat of a pessimist.
I've been rather bearish on the macro economy for a few months, and I more or less predicted a lot of pain in the broader equity markets, two consecutive quarters of GDP contraction, and rising prices in consumer goods.
Being correct but betting against the economy feels a lot like betting on the Don't Pass in craps: I feel a little dirty after counting my winnings.
But looking at the advancing to declining stocks ratio in the S&P for the last six weeks or so, we're looking at 6:1 advancing to declining.
People want growth stocks again; they want cyclical. Even Cathie Wood is on a tear, and we all know how incorrect her thesis actually is.
Markets are on a tear, and a lot of the froth is fueled by decent economic data. Sure, 8.5% on the CPI print is pretty rough, but it's way better than 9.1% from a month ago. Yeah, producer prices are up, but coming in at a half-point decrease in the last month on the PPI print compared to a 0.2% increase is a coalition win for bulls across the industry.
The Nasdaq, aka the queen of beta, is actually back in bull market territory.
Like we used to say, smoke 'em if you got 'em. Celebrate while you can. With better than expected economic data, there is hope that we are done with 75 bps rate hikes, and maybe the tide will turn for the Fed's adversarial nature and sentiment.
Will the rally continue?
The forward multiple for the S&P is around 18, heading towards 19. The low for the year was 16, and the high was back in January at 21.
Only a few things can justify a push back towards 21.
- Earnings outperformance
- Interest rates slammed back down towards 0%
- Illicit drug use by a large portion of equity markets stakeholders
- Everyone loses their minds
The macroeconomic environment still sucks, Apes. Inflation is still high, supply chains are still bent, interest rates are on the rise, growth is slowing, the consumer is softening… need I go on?
Don't get me wrong; have I enjoyed a nice summer pop after getting my sh*t pushed in by the bears for the first half of the year? Sure, who hasn't? It has made writing about stonks this summer way more enjoyable.
But my thesis, which I won't share with you even if you ask nicely, does not include a line of thinking that has concluded that we are out of the woods just yet.