There's never a dull moment in the market. It's always something.
The mixed messages are a feature, not a bug.
That's just how it's always been. So it's our job to weigh all the evidence and make the best decisions we can make, knowing full well that we have incomplete information.
Today I want to talk about 2 theories that may or may not be playing out, but it's something I'm thinking about.
First, is this thing about investor sentiment. How is it possible that individual investors in America are the most bearish they've been since the bottom of the last bear market back in 2022?
I think it's because of what they own.
They're not in China, which is making new 3-year highs.
They're not in Germany, or Europe, which are hitting new all-time highs.
They're in mega-cap US growth stocks. And when you do the math, these "Mag7" stocks have been responsible for 100% of the correction in the Nasdaq.
These investors could have owned almost anything else, and been outperforming these indexes, and likely not be so pessimistic.
I think the historic bearish sentiment is driven by individual excessively overweight a half dozen stocks.
This is probably a big part of it, because I can't imagine what else would drive them to be so sad and upset about the current market environment.
We'll see how this theory plays out, and if sentiment improves if/when these stocks start to bounce.
Here's another theory.
Why is the U.S. so dramatically underperforming other parts of the world? Why did develop markets outside the U.S. just have their best week in stock market history, relative to the S&P500?
The U.S. Dollar having its worst week in years is probably helping to drive this rotation:
I think this U.S. Dollar selloff has been SO dramatic, that it's accelerated this rotation into international stocks to the point where U.S. stocks, particularly the Large-cap Growth areas, are being used as a source of funds for this rotation.
It's not so much that the stock market wants a higher dollar or lower dollar, higher rates or lower rates. It really comes down to the rate of acceleration. In other words, how fast are these assets moving?
When Bonds and Forex markets are moving violently, that spills into equity markets.
Think about it. The bond market is $130 Trillion. The Forex Markets are valued in the Quadrillions. I don't even know how many zeroes and commas are in a Quadrillion. That's how big these markets are.
The U.S. stock market is a tiny little $55 Trillion, a fraction of the others.
So expect stocks to be bullied by those bigger markets. Not just now, but always. This is especially the case when they're moving faster than normal.
And that's exactly what I believe has been happening. To a certain extent, the Dollar getting destroyed, has cause this rotation to happen much faster, and so some of these big U.S. stocks are being used as a source of funds.
That's what I've been thinking about anyway.
Thinking is underrated.
If you have a job that involves thinking, then you should probably spend, at least part of, your day thinking.
And so, as someone who needs to make important decisions every day, I try to spend a lot of time walking, running, and simultaneously thinking.
This is what I'm thinking about.
I don't know what the market is going to do next. It can rip higher to Dow 50,000, S&P 7000 and Nasdaq Composite to 25,000.
That can definitely happen.
Some of this selling in the U.S. can also expand, and the new lows lists start to get longer.
We can enter into a bear market, and maybe even that recession they've been promising us all these years.
Who knows?
I laid out my base case this week and what I think is happening moving forward. You can check that out here and what we're doing about it.
And we like to joke around and have fun with it on the blog, on our Morning show, and on Social Media.
But on a serious note - it's so important to understand that we don't actually know what the market is going to do next.
The good news, however, is that no one else does either. Not Warren Buffett, not David Tepper, not Jose Canseco. And certainly not me.
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