The U.S. stock-market rally that marked the first half of 2023 continues into the second half, leaving bullish investors clinging to the optimism that has helped the technology-heavy Nasdaq 100 index advance by 42% for the year to date, while bears are trying to time the point when momentum fizzles out and the trend shifts to the downside.
“[It’s] almost resembling a political landscape where each side looked at the other with anger and resentment, unable to find common ground,” said Liz Young, head of investment strategy at SoFi, in a Thursday note. “Understandably so, given the plethora of conflicting data — not the least of which is the unexpectedly feverish stock-market rally in the face of leading economic indicators and bond market signals that are clearly waving a red flag.
“We’ve still got a monetary tightening cycle that may or may not be done yet. We’ve got leading economic indicators that are flashing contraction — there’s a lot of different signals out there, including yield-curve inversions, that are still saying we are not out of the woods,” Young said in a follow-up interview on Friday. “The debate will continue and I happen to be on the more cautious side of this, particularly with valuations at this level.
“When you buy stocks, you typically buy them on a forward 12-month earnings expectation basis, and although AI may very well be a completely transformative theme that ripples through different industries, it’s probably not going to change it [technology landscape] entirely by the end of this year,” she said. “So what could go wrong is the timeframe expectation.”
However, Brown said her models show that there is an increasingly wide gap between a fundamental model — which analyzes market volatility based on macroeconomic conditions — and a statistical model — which lets the data tell where the volatility is. Siddiqui, said in his third-quarter equity-market outlook, that investor euphoria tends to evaporate as liquidity dries up, which is expected to happen soon thanks to a potentially historic withdrawal in coming weeks.