Game of Trades: Stocks Are Going to Continue Doing This For 12 Months
Markets have had a strong runup in the past few weeks. The S&P 500 even managed to move into overbought territory for the first time since last August.
Meanwhile, the move higher has been faster than major economic indicators. That divergence suggests that there could be some changes ahead for the market. Investors need to plan accordingly.
Bearish investors have been hit hard in recent weeks. And investors who sat on the sidelines may feel like they’re missing out. But signs suggest that this isn’t a sustainable market recovery.
That’s because stocks have been priced for perfection. Traders are betting that companies can do no wrong. But being overbought may not mean a big market drop ahead. The past few years have seen 5-10 percent drops from overbought levels. And from there, stocks continued a longer-term trend higher.
If we’re seeing a true economic recovery, like the one in 2021, stocks could head higher.
However, the 2021 market rally occurred as economic indicators improved. Without further underlying economic growth, it’s likely that this current rally will stall out.
Investors should expect markets to move to a more sideways trading pattern. That could possibly last as long as the next 12 months, as economic data takes time to catch up to the stock market.