Markets keep rising despite growing recessionary threats. While counterintuitive, the “pain trade” for investors remains upwards for now.
Consensus outlooks still foresee avoiding recession, expecting inflation to steadily fall. But data increasingly contradicts this relatively sanguine scenario.
Economic indicators like manufacturing surveys signal rapid weakening. Corporate earnings are declining as margins erode. Stocks typically drop before recessions hit.
Yet markets seem trapped between two competing forces. Weakness in fundamentals clashes with technicals that remain resilient thus far.
With positioning still long equities and bonds, the path of least resistance persists higher. Bearishness remains underappreciated and underowned.
But just as markets can stay irrational longer than expected, they can also shift valuation regimes faster than imagined once reversal catalyzes.
For now, faith in Fed power and recovery’s persistence favors the bulls. When macro dynamics finally overtake sentiment, the pain trade may swiftly flip negative.
Patience and adaptability are key. The pain move higher continues temporarily, but sudden downdrafts loom. Navigating the turning point requires alertness.
Add Comment