IT’S A ROLL-OVER

Is this the final battle between the crumbling economic fundamentals of the USA, and all that money printing and debt spinning through the system?

At what point do the world’s biggest fund managers recognise the fragility of the current valuations? Given they should be perhaps nearer the bottom of the historic range than the average.

The money is invested. The market though, has had just about all the good news it is going to enjoy for the moment. The Federal Reserve has paused, and market sentiment clings to rate cuts still yet. Despite the clearly stated tightening bias.

Inflation has halved and the headline will be stable to lower. The market now has to more seriously consider however how core inflation is telling a different story. One of stability at near the peak levels with risk of re-acceleration.

Market sentiment has dismissed the banking crisis, which nonetheless continues to simmer in the background.

The building industry is showing some initial signs of ticking up after a prolonged period of recession, but only on the hope of those same rate cuts that may never eventualities. I do mean ’never’ as rates may be high to recent levels, but remain modest in the broad historic sweep of things. The new normal could be even higher than where we are at present.

As we have alluded to all along, rates will, as it became a catch phrase, go higher and for longer than people expect. Market sentiment continues to get it wrong on the interest rate outlook. This is where there are opportunities. When markets are wrong in a still big way.

Nevertheless, stocks are in fact driven by other factors too. While there’s a great new technology event occurring by way of AI, it will prove highly disruptive and it could mean the end for some who unfortunately have a Kodak moment.

The traditional, and even modern Main Street companies, regardless of everything else that is going on are experiencing extremely difficult trading conditions in an environment of depressed business and especially consumer sentiment.

The market price action of the moment appears to indicate a softening of the previous fund management recession proof ’sentiment’.

Who is right? Consumers or fund managers?

One of the two has severely misplaced expectations. I fear it may well be the fund managers who became too detached from the reality of true street level goings on.

The US continues to spiral out of control into extreme debt. In the vicinity of 130% of GDP, and headed higher at a great rate of knots. The economy continues to slow worryingly, and rates could well be going higher.

This, unfortunately, does not a happy market outlook make.

Clifford BennettACY Securities Chief Economist

The view expressed within this document are solely that of Clifford Bennett’s and do not represent the views of ACY Securities.

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