'Wrong Way' Economic Bears Drive the S&P 500 to Another All-Time High
The smartest people in the room are providing jet fuel for the market.
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The economic bears have been warning for months that the job market was going to weaken substantially and inflation would start to rise. President Trump’s trade policies supposedly put the economy in danger of one of the worst of all economic maladies — stagflation.
The negative arguments sound logical, but they have been dead wrong, and were dead wrong again on Thursday when it was reported that 147,000 jobs were added in June, the unemployment rate ticked down to 4.1% and wage growth was slightly lower than expected. It was an excellent report that showed an accelerating shift to private enterprise jobs from government jobs. Also, there was a big increase in full-time employment of 437,000 jobs, while part-time employment fell by 367,000 jobs.
This is the fourth straight month of better-than-expected numbers, but the economic bears have not given up on the argument that tariffs are soon to bite. Even Fed Chair Jerome Powell is holding onto the forecast of problems caused by tariffs. In an interview this week, he stated that the Fed would have already cut rates if it weren’t for the uncertainty of tariffs.
This economic skepticism has been the jet fuel that has pushed the indexes to new all-time highs. The smartest people in the room are on the wrong side of this action, and they have no choice but to reverse their bearish positioning so that they are not crushed by the strong momentum.
Even the bulls are becoming a bit exhausted at this point as entry points become increasingly difficult. This is a fantastic market for holding strong stocks, but it is a very tough market for trying to buy them when they are already so extended.
It is looking like Trump will be able to sign his Big Beautiful Budget Bill by July 4, as he hoped, but this does not appear to be generating much market reaction. The more important issue now is the looming deadline for trade deals. Very few deals have been announced, and Trump is not providing any details about extensions or other actions. This could shake things up if the deals don’t start falling into place as the Administration has been promising.
We also start moving into earnings season in the next couple of weeks, with banks kicking things off around July 15. With so many stocks hitting new 12-month highs, the danger of a "sell the news" reaction to earnings will be elevated.
Have a great July 4 celebration, and God Bless America.
At the time of publication, Rev Shark had no positions in any securities mentioned.
