Is Sideways The New Down?

Is Sideways The New Down? image

The State of the Market

Stocks moved largely sideways last week in response to what appears to be conflicting narratives. But then again, given the overbought nature of the market and the overexuberant levels of sentiment, sideways beats the alternative.

This is not to say that the bears haven't made an effort recently. No, the dueling negatives of Biden's proposal for higher capital gains taxes and rising price pressures (don't look now fans, but the cost of many commodities are surging) was enough to cause some selling. Now mix in the surge in COVID cases in places like India and Japan, and well, it is little wonder that some folks felt a pause in the joyride to the upside was warranted.

Yes, it is true that the proposal for higher capital gains taxes isn't exactly news. And as several analysts pointed out late in the week, the chances of the administration getting everything they are proposing are basically slim and none. As such, the quick reversal in stock prices on Friday really wasn't terribly surprising.

What is a bit surprising (well, to me anyway) is the idea that inflation might just rise faster and higher than any of Mr. Powell's merry band of central bankers believe and that said inflation might just stick around a while. Therefore, I can't blame some investors for thinking that taking some profits at all-time highs is a good idea.

Yet the positive side of the ledger still has two pretty powerful entries. Namely the booming economic data and the fact that analysts continue to fall all over themselves in an effort to raise earnings estimates for the year.

So, there you have it. On one hand, you've got the lifeblood of bull markets (earnings and economic growth). And on the other you've got some very real concerns that could easily put a dent in those rosy expectations for the future.

The result over the past week or so has been a market that appears to be going nowhere fast as both teams appear to have an argument. You can call it a pause, a consolidation, or perhaps even the start of the next move (up or down!). But from my seat, it looks like sideways might be the new down - at least for now.

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The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should ...

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