Share markets are rallying… for no good reason.
Share markets are a little odd right now.
They’re on the up and up.
Why?
No one really knows. The general sense seems to just be that ‘things can’t get any worse.’
I don’t know if that’s really much to hang your hat on.
But that’s what investors are doing. The first six months of the year were the worst first half in decades. In America, it was the worst first-half in more than 50 years.
The US market was down something like 20% by the time it reached it’s most recent bottom on June 16.
From there though, it’s been nothing but up. The broad S&P500 is up 12.6%. The tech-heavy Nasdaq is up 16.4%.
In fact, the American market had the best July since 1939.
In Australia, the All Ords is up about 10%.
So is that it? Is it onwards and upwards from here?
Maybe. But people are worried about a false signal – a ‘bear market rally’ or a ‘dead cat bounce’ as they call it.
And that can happen. It can happen a lot.
When the US market collapse with the bursting of the dot-com bubble, the market fell 78% between March 2000 and April 2002.
But on the way down, the market rallied by 10% or more on 11 different occasions.
And on one of those occasions it rallied by more than 45%!
So it’s hard to know.
And there are stories you can tell if you want to. America has just had a flurry of earnings activity, with some big names like Apple and Amazon reporting.
And on the whole, those results came in stronger than expected (although they still weren’t fabulous.)
There’s also been a softer tone out of the Fed. Fed Chair Jerome Powell noted in his last statement (after hiking rates by 75bps!) that “recent indicators of spending and production have softened”.
Markets took that as a signal that the Fed was becoming more dovish and wouldn’t keep hiking aggressively for too much longer.
But yeah, maybe yeah, maybe nah.
Earnings were better than expected, but they weren’t great. And the Fed still doesn’t seem to have inflation fully under control, and has been prone to a bit of wishful thinking in the past.
And the international outlook still looks far from certain, with every chance the energy crisis takes another leg up.
But then again, maybe a lot of this has been priced into markets already.
Maybe markets were expecting the worst. Maybe they were pricing all out war and recession and a rebound in Covid.
Maybe it really is the case that things can’t get any worse.
Maybe it is the case that the only way is up.
Maybe. But I wouldn’t be hanging my hat on it.
JG.
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