After a very chaotic session Tuesday, the market action is mixed with a negative bias on Wednesday.
Selling is accelerating, and breadth is running about 2 to 1 negative, pockets of momentum are slim, and the Nasdaq 100 (QQQ) is leading to the downside despite very strong action in Microsoft (MSFT) on AI news.
Many market players were looking for Jerome Powell to trigger some selling on Tuesday, but they were wrong, just like they were wrong on the Fed interest-rate decision a week ago. In both cases, there was nothing very dovish about the comments, but the bears were tapped and provided fuel for a strong upside movement.
Wednesday morning, market players are pondering the bearish view once again and are wondering how much longer this positive price action can last. It is driven in large part but structural issues that have nothing to do with longer-term fundamentals and economic factors.
There is a very strong bearish thesis that has been ignored of late. What is most notable about the view of some of the most influential market strategists is how bearish they are. They are not hedging and continue to be quite confident in their views. Here are the positions of three major strategists:
Mike Wilson of Morgan Stanley raised the firm's expectations for the Fed terminal rate to 5.00%-5.25%. Wilson says the recent rally could be over as the market starts to price in much lower earnings than the consensus view and reverses gains. Wilson is less concerned about inflation than other strategists but much more concerned about a potential recession.
Marko Kolanovic of J.P. Morgan is calling the recent rally a bear market trap. He warns that the disinflationary process could be "transitory." He currently expects two more hikes at the next two meetings. Kolanovic tends to believe that the battle over inflation is going to be much harder than expected and that there is too much focus on deflation.
Mohammed Apabhai of Citi says to be ready for rates to go as high as 6%. Apabhai says markets may be underpricing the risk of more rate hikes and sees strength in the dollar as a major market risk. Like Kolanovic, Apabhai is worried about the stickiness of inflation.
The market view recently has been surprisingly benign. It is not embracing any of these views, and the price action is crushing the bears. At some point, the data will tell the story, and there will be a reaction, but for now, we are enjoying some "what me worry?" market action.
