The Market Outlook Remains Poor
Rising global interest rates (a function of inflation, debts and deficits), a continuation of the Iranian conflict (and its impact on producing higher oil prices), sticky inflation and slowing global economic growth (“slugflation“) have recently become a toxic cocktail for U.S. stocks — leading to (as I have noted) a deterioration in market breadth and a rolling over of several leading market sectors’ prices.
With the equity risk premium continuing a year-long contraction and valuations still above the 90%-tile , the outlook for equities remains problematic. (See opener on valuation models coming up.)
Many individual stocks are no longer responding well to better-than-expected profits. which are being buoyed, in general, by non-recurring equity gains and double and triple ordering (in AI-related companies who are “overearning”) — giving credence to “second-level thinking” over “first-level thinking.”
Finally, with the Democratic party leaning left and the Republican party leaning right, politics might begin to weigh negatively on our markets over the next few months. Significantly, with the rising probability that a “left-leaning” Democratic party might make congressional inroads in November’s midterm elections — market unfriendly higher taxes and other anti-corporation policies could be forthcoming.
Position: None
