State of the Market

The U.S. stock market has been in rally mode since March of this year. As almost all investors know, this has been led by AI adoption and its rollout. The amount of capital investment going into this new technology is truly astounding. It is in the trillion-dollar range and is not nearly finished yet. This spending is a source of profits for many companies. In fact, of the 2% GDP growth in the first quarter, 0.8% or 40% is coming from this investment.

Unfortunately, this positive driver of growth is also a problem. It is a narrow segment of the overall stock market and U.S. economy. Narrow markets can go a long way, but are inherently more fragile. There just is not a broad base of support when confidence wanes or something goes wrong.

The money flow model that we follow has been trending in negative territory for some time now. Other technical indicators are also flashing yellow warning signals. This can happen from time to time and not result in a full-blown correction. The offset is that earnings from the S&P 500 companies are growing at about a 20% rate. So, there is a tension between the narrow market and terrific earnings.

Higher inflation and rising interest rates also play a role. At the very least, we are likely to go through a period of increased volatility. The Bull and his partners have anticipated this. We hope to pick up some bargains and perhaps upgrade a few positions. Stay steady my friends.

-The Lonely Bull