SSO - Wall Street Exclusive: 'Mean Reversion'

2024-07-20 02:50:30 ET

Summary

• Price action confirms one of the biggest risks market analysts see out there - the concentration in the market.
• The S&P 500 earnings data support the bull market narrative. Pay attention to companies beating estimates and raising guidance.
• Investors need to turn their attention from the "Magnificent Seven" to the "Magnificent Alternatives."
• Taking the steps to a normalization process that brings stock market equilibrium will be necessary to sustain any BULL market advance. One-sided markets always end badly.

"Maintain a firm grasp of the obvious at all times.” – Jeff Bezos

The View on Wall Street

The stock market was banking on six rate cuts as we started the year, and with it looking like we might see one cut, not many would have predicted the ~18% S&P gain we've recorded this year. This is another example of how the backdrop can drastically change and, more importantly, produce unexpected results.

What really happened was the economy stayed more resilient than most "experts" thought. Like myself, many underestimated the staying power of the massive stimulus doled out after Covid was under control. Forgiving student loan debt ($167 Billion to date) and spending Billions more on accommodating illegal migrants were never factored into the equation. Therefore, the notion that a recession was right around the corner drifted into the sunset. Unfortunately, that also hampered the Fed's fight against inflation. While the rest of the world has already begun cutting their interest rates, the US has yet to do so.

In addition to inflation remaining above target for longer, these are the reasons why the Fed has remained on the sidelines. A better economy is always good for the stock market. Remove the threat of recession, and stocks become a different ballgame. Add in a catalyst like Artificial Intelligence, and it's clear why technology is the best-performing sector....

For further details see: