The market continues to ignore the economic bears, but with technical conditions becoming increasingly extended and a steady flow of new data there is likely to be increased volatility.
The bulls have shrugged off indications that the Fed is likely to be more hawkish than recently thought and are taking comfort in an extremely resilient economy. Inflation has been moderating, but Fed rate hikes are not slowing the economy as feared.
There is a very well-known old saying, "Don't fight the Fed," but that seems to have been twisted to "Don't believe the Fed" when it comes to comments about their resolve to drive inflation back to the 2% level.
The bull/bear battle is particularly fierce as many high-level market strategists have been extremely bearish and predicting another major market downtrend. They have been wrong so far, as neither a mediocre earnings season nor hot economic data is stopping the very positive price action.
There were some good earnings reports Wednesday night from Roku (ROKU) , Cisco (CSCO) , Twilio (TWLO) , and a few others that are keeping sentiment positive. In addition, Bitcoin has continued to recover and is now at its highest point since August.
Meanwhile, there are housing starts, PPI, and unemployment claims data coming up Thursday morning, which will have some impact on the narrative about the strength of the economy, although the bullish thesis continues to be that we are in a Goldilocks environment in which inflation is not too hot and economic growth is not too cold. As long as that narrative holds sway, there is no reason for the market not to continue to trend higher.
This bullish view flummoxes the bears. They are convinced that there is still significant inflationary pressure and that the Fed's efforts to control it will eventually extract a substantial economic cost. They believe that the bulls are deluded, but so far, the price action is saying that the bears are wrong.
We will see what happens with the economic news that hits at 8.30 a.m. ET. The recent pattern is that the market dips on hotter-than-expected reports and then comes roaring back as dip buyers jump in. The dip buyers are well-conditioned now and will not go away until they are trapped in a failed bounce or two.
From a stock-picking standpoint, this is a very difficult market right now as entry points are extremely tough unless you are willing to chase and are confident that the current momentum will continue. I will stay very selective with new buys and watch carefully for some reversal action to develop.