June 13, 2024

Narrow Market

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By Peter Bower

Once again, the U.S. stock market has become narrow. Returns are coming from just a handful of companies. It seems when investors become concerned about the course of economic activity, they resorted to piling into the “safe” accepted sure-fire growth sectors; AI and GLP-1* weight loss plays. There are a few others, but not many. Unfortunately, many of these have had parabolic moves that leave them vulnerable to bad news or shifts in sentiment.

The uncertainty about the economy comes from the Federal Reserve’s hawkish stance on inflation. Investors fear they are not seeing signs of economic stress and will wait too long to begin easing monetary conditions – lowering interest rates. Of course, no one knows for sure, that is the reason for the narrowing.

Instead of multiple rounds of interest rate cuts forecasted earlier this year, it seems only one is now likely. This, unfortunately, may keep current trends in the stock market in place. We will get through this phase, but it may not be without more volatility and the prospect of a drawdown. After all, no matter how good, no tree grows to the sky. The Bull and his partners are taking note and will be adjusting accordingly. Stay steady my friends.

 

*glucagon-like peptide-1, a multifaced hormone with broad pharmacological potential. They help lower blood sugar levels and promote weight loss.

 

The Lonely Bull