The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Hope springs momentarily.
S&P futures traded +50 overnight and rallied hard as we approached the open. The S&P opened +164 and rallied for another 60 minutes, topping at +205. That’s a big rally. What was behind it? There were rumors that South Korea wanted to negotiate new trade terms to get the tariffs off the table. There were rumors of 50-ish different countries reaching out to the US to negotiate trade terms. Markets daydreamed that tariffs might go poof. Investors, itching and twitching to buy, chased the momentum higher and the S&P shot up like a rocket. Once the frenzy passed, the tape gradually leaked the value away. It went negative around 1:30 PM and broke below flat just before 3 PM.
Tariff talk remains the driver of market action but rumors, both rooted in reality and invented, are triggering stampedes in the US equity market. One *cannot* play this game with the market and win. You will get chopped up. You don’t know what’s real and what’s ersatz. You don’t know if you’re early or late. I am shocked at how much capital is getting sucked into this game.
Anyway, what we can learn from the price action is this: the desire to buy is immense. Everyone from retail Joe to Warren Buffet is looking to buy. When everyone is that gung-ho to buy, it’s not the bottom. All the investors with beer muscles have to be *scared* to push the buy button or need to be tapped out of capital.
That isn’t today.
Keep your eyes on the fundamental reality of the world and try to ignore the hype of the tape when it zooms upward on a an it’s-all-better-now premise. That’s easier said than done of course.
The point is that the fundamental situation is not as nimble as perception. The damage done already to the global economic decision-making process is not undone as quickly as it was done. We are not dealing with symmetry. Additionally, the economic trend is negative. These tariffs are strong brakes on economic activity. The longer they are in place, the worse things will slow.
Before you buy, unless you are looking to flip *intraday*, you must ask yourself whether the buying price is correct for a recession. We’re heading into a recession. Markets aren’t accepting that yet. Once markets accept it, buying for the medium/long term will make sense. Until then, it’s the fastest and most dangerous game of musical chairs.
See you tomorrow.
-Mike
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