'Dead Wrong' Economic Bears Are Surrendering to Reality
The indexes continue to run up as economic skeptics capitulate.
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The indexes are hovering near all-time highs, second-quarter earnings are looking quite healthy, inflation appears to be under control, and there is little concern about the upcoming tariff deadlines. This presents a problem for economic bears who have been convinced that President Trump's economic policies would lead to disaster. It just isn't happening, and now some of the bears have no choice but to surrender to the reality that things are pretty good.
The lead article in the Wall Street Journal on Monday morning is "The U.S. Economy Is Regaining Its Swagger." It is noted that consumers are spending again, and concerns about tariffs have been put aside. This may be a contrary indicator, as things start to slow. Still, there is no denying that the vast majority of economic forecasters have been dead wrong about the market. Even the Fed looks foolish with its insistence that it has to continue to wait to cut rates to make sure there are no increased inflationary pressures.
This incorrect view of the economy has actually been a tremendous positive for the U.S. stock market. Investors have been consistently out of position, resulting in a "climb-the-wall-of-worry" dynamic that has kept the indexes near all-time highs. The pattern of intraday strength illustrates a high level of bullishness.
Second-quarter earnings pick up steam this week with reports from Magnificent Seven MAGS members Alphabet GOOGL and Tesla TSLA. Verizon VZ is the primary name on Monday. So far, there has not been a "sell the news" reaction, although the reaction to Netflix NFLX is of some concern. That may have more to do with currency issues than anything else.
The biggest problem the market faces is extended technical conditions. Many stocks need some consolidation to digest gains and to set up for another leg higher. There have been only shallow pullbacks for weeks, and many dip-buyers have had to chase to put some cash to work.
This action is a good example of the power of momentum. Momentum always goes further and continues for longer than seems reasonable. Investors who try to impose their view of whether things are too extended are almost always wrong.
We have a positive start on Monday morning as the economic bears are forced to capitulate.
At the time of publication, Rev Shark had no positions in any securities mentioned.
