Stocktake: Markets shrug off macro concerns

Talking about strong market technicals are all very well, but sceptics might ask: what about the fundamentals? It’s a valid question, says Ned Davis Research’s Ed Clissold, who says the gap between macro concerns and bullish technicals is one of the biggest he has ever seen.

Take inflation. Markets roared higher after July’s Consumer Price Index reading showed a surprise slowdown. However, less volatile measures of inflation rose, notes Clissold, so it’s too early to be taking victory laps just yet.

Similarly, the rate-sensitive housing sector continues to weaken, says Clissold, and further rate hikes are coming.

Thirdly, investors will have to contend with the slowdown in earnings “for a few more quarters”, he cautions. So should investors ignore the improvement in market technicals? Not so fast.

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“The kicker is that technicals lead fundamentals,” says Clissold, who says fundamentals always look “terrible at the lows”. The US economy may well fall under the weight of further rate hikes and other factors, he says, leading to stock markets falling to new lows, “but to dismiss technicals on macro concerns is ignoring market history”.