A Strong but Expensive Market Presents a Dilemma for Investors
Market logic is quite different than human logic.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
After hitting new all-time highs on Friday, market action is weak on Monday morning, with gold jumping and Bitcoin IBIT dropping sharply. There is some concern about a possible partial shutdown of government if a bipartisan agreement is not reached, and later this week, investors will have the PCE inflation data to consider again.
The key issue facing investors is the balance between a dovish Fed that is driving strong technical and price action and growing concerns about valuations.
Last week, hedge fund billionaire David Tepper appeared on CNBC and summed up the dilemma very well:
“I don’t love the multiples, but how do I not own it. I’m not ever fighting this Fed, especially when the markets tell me one and three-quarters more cuts before the end of the year, so that’s a tough thing not to own. I’m constructive because of the easing right now, but I’m also miserable because of the levels. Nothing’s cheap anymore.”
It is a tough situation for investors who have done extremely well sticking with strong momentum and ignoring valuation concerns, but at some point, those valuation issues will matter. The question is what will it take to trigger some concerns and trigger some profit-taking.
The bears have been wrongfully anticipating a market correction for months, constantly bemoaning investors who are ignoring the fact that inflation isn’t totally dead, the economy is showing signs of slowing, and valuations are at high levels.
Logically, this market should be running into some obstacles. The problem is that market logic is quite different than human logic. As the famous saying goes, the market can remain irrational longer than you can remain solvent.
My best advice is to stay focused on the technical and price action. Price action will tell us when the bearish arguments start to matter. Only after weakness takes hold will the market start to worry about all those things the bears have been whining about for months.
Watch support levels, take some partial profits into strength and extended charts, and make sure that there is a good technical setup for the stocks you might want to buy. Don’t let FOMO push you to chase bad charts.
It is a tricky environment, but as I wrote this weekend, the key to building stock market wealth is not letting your portfolio drop too severely when a correction does occur.
At the time of publication, Rev Shark had no positions in any securities mentioned.
