Game of Trades: Speculation Is Going to Lead to Pain in the Stock Market in 2023

After a significant down year for the markets, it’s reasonable to expect an up year. Historically, that tends to be the case. However, the stock market’s current trend is still down.

That trend is being tested following the market’s strong performance in January. And investors are now less bearish on growth stocks than at any point in the past year. However, it may be too soon for investors to start getting bullish on stocks just yet…

That’s because the market’s move higher over the past few weeks has been notable for heavily shorted stocks as well as tech names. That’s a sign of an oversold bear market bounce, rather than a new rally.

Meanwhile, other indicators suggest that the economy will remain weak. The most notable is that of the U.S. Treasury yield curve. It is at its most inverted level since 2000, when tech stocks imploded and a bear market ensued.

Essentially, the bond market is expecting the Fed to cut interest rates. The Fed only does so when the economy weakens significantly and noticeably. That’s why investors betting on a market rebound may be on the losing side in 2023.

With investors looking to take on more risk now, and with market excitement increasing, it may be a time to look at the other side of the trade. Some caution following a big market selloff may be warranted, especially amid signs that there may be further trouble ahead.

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