The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Pivot
The results of the midterms initially sent futures down last night but they bounced before midnight and never looked back. Crude didn’t react much initially but started to drop around 4 AM and it never looked back. Yields fell also, falling further as the day proceeded. Risk on was the move for markets and while some of the Mag 7 had quite a good day today, it was the rest of the market that really led the way. Consumer discretionary led among the sectors and energy lagged. Capital flow was heavy at 150%.
The narratives floating around today are that the Democrat majorities in the House and Senate will result in some timely conclusion to the US/Iran hostilities and a dismantling of tariffs. Perhaps those outcomes would then influence the Fed’s hiking path.
I don’t think it makes sense to argue for or against today’s narratives nor to claim that today’s stock market rally was overdone or even wrong. The thing worth considering is that we just experienced a fundamental change in the investment landscape.
The net results of that change will take time to become obvious. Until evidence becomes available, we are dealing with a sentiment shift, and that shift is bullish. The bearish technicals that popped up in the last few days are now reversed. The dip-buyers are vindicated. The shift away from concentrated stock leadership is underway. These are powerful sentimental factors. How much longer will they last and how much further will they take prices?
It is doubtful that a move like today’s is a reflexive one-off event. It is likely that we’ve just made a sentimental pivot. If today’s speculations about the US & Iran, and tariffs, and inflation, and the Fed are merited, then evidence of progress in those areas will support and extend today’s risk on moves. If not, we’re going to retrace. Both those possibilities will take time.
On Day Zero of a sentiment shift like this, I think it’s a low probability that the market will reverse beforehand.
See you tomorrow.
-Mike
Visdom Market Commentary
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