The question many times is whether the markets will have ‘V’ or ‘W’ shaped recovery.
Nobody really knows the answer, but we try to use our money flow data to see whether big money is buying or not. Here are three realities currently:
- We’ve had a nice bounce off the bottom
- Very few “trade agreements” have been signed
- We have an economy that is slowing.
What we’re seeing in the markets is a divergence between money flow breadth and price breadth. To make it simple, typically price would follow money flow and it’s not right now.
You can see this is a lot like 2022, where the white line didn’t follow the yellow line. And a ‘W’ market was the result.
Today, it’s possible that we are just higher and the bottom was a quick bottom and no harm was really done. It’s also possible that this recent rally was a “dead cat bounce” and we go back and test the bottom put in in April.
Perhaps a big factor in determining what’s next is the FED. Reality is that the FED is now not likely to cut rates until September, although the rest of the world is cutting rates currently. The ECB just cut rates again a few days ago.
Here’s the headlines from Switzerland.
Wait a minute…there’s now a one in three chance that the Swiss National Bank returns to NEGATIVE interest rates? That can’t be because their economy is strong. Same must be true for the ECB.
So, if most countries are cutting interest rates, how can the US economy remain strong and resilient? Don’t get me wrong, I think we are still the best house in a bad neighborhood, but it doesn’t mean our house isn’t in need of repainting (if you get my drift).
Meanwhile, the NFIB (National Federation of Independent Businesses) came out with their survey and small businesses are feeling a bit better about things. Check out this headline.
I think it’s likely that we have seen a low in the market, the question remaining is whether we will see a retest of some sort of those April lows. Such a retest doesn’t mean we have to go all the way back down, though that is of course a possibility. Until we have a more definitive answer, we still remain invested, just on the more conservative end of the spectrum.
As always, please let us know if you have any questions about this or any other topic. We will be happy to have a conversation.