Markets are mostly flat this morning after the S&P 500 and NASDAQ took out their all-time highs. I am starting to see some froth, especially in the NASDAQ. It may be time for a short pull back but any pullback will most likely be shallow. Shallow like 5% if that.
The economy continues to work through several constraints such as housing costs, supply disruptions and labor shortages but companies continue to adapt and become more efficient. Since markets price in future events, has it priced in all of the growth through the end of the year? I don’t know but there are indicators that cause some concern.
Bond rates are actually falling and not going up. This is telling us that inflation is not the problem and could be just the opposite. The dollar has moved from a low of 89.6 to 92.1. that does place pressure on the S&P 500. At the same time, oil prices are spiking. That places pressure especially on lower-wage workers going back to work. These constraints will help slow the move higher in markets and hopefully keep them healthy.
Just remember, corrections come and go and I have continually been reminding you of that. A five to ten percent correction can happen at any time. That could take the S&P 500 down almost 400 points to 3900. It’s not that likely to happen in this environment but just want to give you a perspective to be prepared.
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