FX Evolution: We Haven’t Seen This Happen to Stocks Since October of 2022!
Markets continue to show some volatility following last week’s downgrade of the U.S. credit rating. Earnings season has helped some, with some companies handily beating expectations.
For companies without a strong brand, moat, or unique selling point, however, this market remains tough. Thanks to years of above-average inflation, consumers are price conscious. And areas with a lot of competition or a weak selling point aren’t performing as well as companies with a strong brand.
In the meantime, there’s an argument to be made that the past 18 months of increasing interest rates hasn’t really led to monetary tightening.
The ratio of nominal GDP to the M2 money supply still remains above its trendline. While the big jump higher has disappeared, that may simply be a sign of monetary conditions returning to normal.
Meanwhile, the market’s rally year-to-date has encouraged many investors to buy into the stock market. That’s helped fuel the rally. But institutional investors have been willing to take profits.
This divergence is at the highest rate since the end of last year, near the market bottom. That’s when institutions started buying as individual investors started to sell out.
That indicates that we may be in for some turbulence in the coming weeks. And that investors may want to be cautious now.