US stocks remain broadly overvalued. The bond market has crashed, the Fed has embarked on a rate hiking campaign and is practically promising big rate hikes in an effort to fight inflation. Some halfheartedly bullish commentary compares the current state of the stock market with that of late 2018, when the Fed abandoned a rate hiking campaign with stocks down around this far, but this commentary fails to acknowledge that CPI wasn’t running at 8%+ in 2018, or that in sharp contrast to 2018, the Fed has publicly stated inflation fighting support from the Oval Office, or that inflation is generally a high profile sore point with the American public.
How could stock prices do anything but continue sinking?
We need to distinguish the short from the medium term. Market sentiment is in the pits. Stocks are technically oversold, and too much certainty in any direction invites a buildup of positioning betting on it. In this case, that adds up to a lot of hot money short positions.
This is the kind of stuff bear market rallies are made of. I’m not going out on a limb, because short term market movements are notoriously random. But we rarely see a better setup.