Economic Optimism Is Providing Strong Market Support Amid Negative News Flow
The biggest risk to the market is if the economic narrative shifts.
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The market action is nervous and uncertain early on Wednesday morning. Market participants are still optimistic about the economy, but they are contemplating whether the escalating hostilities in the Middle East will lead to more selling.
Stocks recovered some of their losses late in the day on Tuesday, but it was a day of distribution, and some technical damage was done. The anticipatory bears were out of position during September, but they may now have an opening in the two-week period before earnings reports start to roll in.
The uncertainty of the Middle East situation, the dockworker's strike, and upcoming economic news combined with extended technical conditions give the bears some ammunition, but they are still battling with bulls that have consistently benefited from jumping in quickly whenever there is a dip.
Dip buyers tend to stay very aggressive until they are burned a few times. Currently, buying the dip is viewed as low risk since it has worked consistently for a long time. That will change if bounces fail and there are some weak closes.
The big positive that the bulls have for them is economic optimism. The Fed is being celebrated for conquering inflation and engineering a soft economic landing. Interest rates around the world are being cut, and most economies are holding up fairly well.
The biggest risk to the market is if the economic narrative shifts and concerns grow about either a rebound in inflation or weaker economic growth. As long as those two issues don't gain traction, the market should continue to have very strong underlying support.
I've been struggling trying to put cash to work for a while now. A deeper pullback before earnings season would offer some good opportunities, and I'm patiently waiting to see what develops.
We have some weakness in the early going as market participants await developments in the Middle East.
At the time of publication, Rev Shark had no positions in any securities mentioned.
