If you’ve been reading my articles for a while, you know I’ve written about a tetter totter (or see saw if you prefer) in the past when explaining any number of market dynamics. I’ll risk repeating myself this week as it is such a good visual.
It works especially well when thinking about investor sentiment. When it comes to how market participants feel about markets, there is a tendency to “pile up” on one side – tipping the proverbial sentiment teeter totter into positive or negative territory.
Since 2022, most market participants have taken their seat on the negative side of the sentiment see saw (citing countless concerns over interest rates, lower earnings, war, debt ceiling, slower growth, likely recession, just to name a few).
This past week was really the first time in a long time that we’ve felt a shift towards the positive sentiment side of things (where we have resided, even during a tough 2022). A few possible reasons for this shift (albeit subtle):
Equity performance – performance year-to-date has been quite staggering, especially in certain companies, sectors, and indexes that were hardest hit in 2022. The S&P 500 is up almost 10% year to date and the technology and communication services sectors are up 34% and 33% respectively year to date. There have been a considerable number of end of year price target revisions to the upside in the past few days, indicating that analysts are rethinking their prior pessimistic viewpoints.
AI bonanza – I don’t quite know how else to describe it. Lead by astounding earnings from Nvidia last week, markets have come alive to the next potential driver of innovation and productivity. We can have a discussion of if this has been a grand overshoot/pull forward, but regardless, this certainly seems to have awaken a renewed interest in investing in securities other than t bills and TIPS!
Debt ceiling resolution – a late night vote by the senate required me to edit this post (originally written 6/1/23) to say the debt ceiling extension has been resolved. Pending the President’s signature, the debt ceiling will be extended thru January 1, 2025
Earnings coming in strong – on the whole, Q1 earnings were far better than feared and the downward revisions did not materialize
Case for a Pause -Markets appear to be hoping that the Federal Reserve will pause at its next meeting. Odds of a hike have risen (from 0% post last meeting to ~60% now) so a pause is far from certain. Yet markets are carefully watching cooling inflation and hoping the end of hikes is near.
Are there still reasons to stay on the negative side of the ride? Sure. Jobs data released this week (and more to come at end of the week) showed that the labor market remains strong, which puts pressure on the Fed’s rate decision. Some companies have missed on earnings (a few in retail sector this week). The economy could still enter a recession. And a whole host of concerns and possible outcomes we haven’t even begun to consider.
The takeaway from all of this is not to guide you towards one side of the ride or the other. Everyone is entitled to their feelings towards the market and investing at any given point in time and can sit wherever they like. The suggestion I would give you however is that you stay on the ride, no matter how uneven if gets at times.
Leaving the “playground” for good is the last thing I want to see you do.
Onward we go,
Note: All commentary above is as of the date of this post and is for education and informational purposes only. Windermere and its principals do not intend for this to serve as investment advice and are not responsible for any actions taken based on this article.
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