The U.S. stock market has been doing surprisingly well so far in 2023 despite evidence of slowing economic growth, uncertainty about the direction of the Federal Reserve’s monetary policy, troubles in the regional-banking sector, and the politics of the debt ceiling in Congress.
The S&P 500 has advanced 7.5% year-to-date, while the tech-heavy Nasdaq Composite COMP has recovered 18.5% so far this year and the Dow Jones Industrial Average DJIA was nearly flat, according to FactSet data.Tom Essaye, founder of Sevens Report Research, said negative expectations from both institutional and retail investors were “inadvertently supporting stocks” as the market’s failure to decline on bad news prompts buying by investors who are underweight equities.
The concept is based on the idea that the stock market has a higher probability of moving in the opposite direction to a prevailing consensus and a tendency to extract the maximum pain from as many investors as possible.The S&P 500 SPX fell to a two year low in October 2022 as investors worried about elevated inflation and aggressive interest-rate hikes from the Federal Reserve.
The recovery in the S&P 500 has left investors and many active managers “underinvested and underperforming” the S&P 500, wrote Essaye.
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