ODDEST BULL MARKET EVER: Reality Hasn’t Set in Yet!
Already, 2024 is shaping up to be the Year of the Great Disconnect. Sure, there’s a widening disconnect between the wealthy .1% and the rest of us, but that’s been the case for a very long time. This year, the disconnect to keep an eye on is the one between market sentiment and economic realities.
Imagine if someone came to visit the U.S. from another continent, and you had to explain to him why stocks representing giant corporations are at all-time highs but small-cap companies are still in a correction. How could you even make sense of this, not to mention explaining it to somebody else?
That’s why I’m calling this the oddest bull market instead of the most hated one or the so-called “everything bubble.” It’s never really a bubble in “everything,” as the market always focuses on some shiny objects while leaving other segments of the economy behind.
Rotation is normal, but lately nobody’s been rotating out of NVIDIA, Alphabet, Meta Platforms, and the other so-called “Magnificent Seven” stocks. Utilities, energy, and consumer discretionary stocks are lagging badly behind mega-cap tech stocks, but that’s rarely reported in the press since a good value isn’t a “sexy” story.
Take a glance at the mainstream media and you’ll see that they’re actually making excuses for this bizarre, unbalanced market. I literally heard someone with a suit and tie yesterday try to tell me that the lack of broad-based participation in the current stock-market rally doesn’t matter.
So evidently, it doesn’t matter that companies providing life’s essentials, like Archer Daniels Midland and 3M, just posted awful quarterly earnings reports. Nor does it matter that utilities are flailing and floundering. As long as Netflix is doing well, that’s evidently a good enough excuse to push the NASDAQ and S&P 500 higher for another day or two or three.
Yet, the market is happy to ignore corporate earnings as long as they think the Federal Reserve is about to start chopping interest rates like a central-bank lumberjack. One mainstream media article actually claimed that “a Fed pivot began in November,” though it was really only a pause from raising rates and not actually a pivot to cutting rates.
But again, reality can be put on the shelf for a while when the market’s in an irrationally exuberant mood. Treasury Secretary Janet Yellen already declared that the U.S. economy has achieved a “soft landing,” so it must be true, right?
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If you believe that story, then maybe you also believe that inflation is getting tamed. To believe that, though, you’d have to somehow avoid shopping for food or a vehicle, or paying rent or a mortgage, or looking at your electric bills. But then, ultra-wealthy people don’t notice that the economy is sluggish since they have other people take care of the shopping and bill-paying duties.
The current market sentiment also feels sluggish, at least among astute investors. Economic growth, as measured by real GDP, is slowing. The manufacturing sector has spent at least a year in contraction. And by the way, the blockbuster electric vehicle sales that were supposed to happen by now, never materialized.
The U.S. GDP is extremely relevant, as it’s a better measure of the nation’s economy than the market-cap-weighted S&P 500 and NASDAQ. When the value of the total stock market exponentially outpaces the country’s GDP, it’s a sign that the bull market isn’t just odd – it’s fully dislocated.
Even technology companies aren’t doing as well as the perma-bulls would assume. Tech companies are laying off workers left and right, yet the pundits will try to tell you that tech layoffs somehow “aren’t a sign of a labor market slowdown” (that’s from an actual headline).
How about the fact that the unemployment rate bottomed out and is slowly rising? That’s a labor market slowdown in the most literal sense possible. Plus, the quit rate is slowing down because workers are afraid to leave their jobs now.
The market can temporarily overlook these real-world issues because it’s pricing in seven interest-rate cuts this year. That might be difficult, though, since the market now sees the likelihood of a March-meeting rate cut as less than 42%.
Finally, there’s good old gold, which is up but retail is largely out. It’s ironic that amateur investors are ignoring the greatest shiny metal object of all, because they’re so distracted by other shiny metal objects like generative AI.
Gold slightly above $2,000 is really just the start of a much bigger move, though that’s not where the market’s attention is right now. But then, it’s not your duty to look where the pundits tell you to.
They’ll tell you to look at generative AI stocks after they’ve already ran up hundreds of percentage points. Or, they’ll recommend speculative electric vehicle and clean energy stocks even if the demand isn’t really there.
There’s no speculation involved if you have gold, though. It’s not gambling when the balance of supply and demand strongly favors higher gold prices. This will resolve itself over time, and the odd bull market will correct itself and even start to look rational again.
Chief Editor, CrushTheStreet.com
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