Markets went down yesterday and now consolidating. Earnings overall have been very good and supporting the current price levels in the market. But is growth slowing? I now believe that the bond market is pricing in a slowing in the economy. This is not to say that we are going to have a recession, but any slower growth from here can possibly cause the market to correct. Nobody knows if the market is fully priced until we have a correction. The market tends to overshoot and undershoot but it eventually prices itself correctly.
Today is Fed day and Powell again will have to thread the needle in order to keep everyone happy. That is a tough job! From one side, he has to address inflation, and there is real inflation present. But is it really temporary? Many say it’s not, but we just won’t know until some time has passed and then it may be too late. If that is the case, it will be a very painful process to get it under control. On the other hand, Powell needs to ensure that full employment can be achieved. Today, the delta variant will give him a reason to keep the money printers printing.
For now, watch the market price action. If we take out yesterday’s low, we will most likely go lower and that may be the first indication of a market top. If we take out Monday’s high, it is likely that we go higher. I believe that there is more downside to come but the price will tell me if I am right or wrong.
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