So here is what JPM thinks…
Boiled down, that reason is that if Trump stops rampaging like a bull in a China shop and turns on a dime as he did with Mexico; and if the economy remains firm, then the fear that the stock market has baked in will resolve in a bigger and continued rally…
“Because this situation can also be undone on short notice and many market segments already price in worst-case outcomes.”
Normally I am all over such contrarian thinking, with the most recent example being the Christmas Eve massacre in stocks that took place while casino patrons were already screwing out of work and getting into the Christmas spirit but the machines were driving the markets down to a climactic low. It was like shooting fish in a barrel and my only regret is that I did not do more buying on that day (steady old me just did the requisite contrarian buying).
Okay, so the market has priced in worst-case outcomes today? No, that was on December 24th. Here, let’s use my now outmoded chart of SPX (it may or may not prove to be short-term bearish, but at this moment, SPX has taken out the nearest parameters to that outcome) to compare December 24th to today.
SPX filled a gap and bounced right from the extreme level I thought (as noted in NFTRH) it would bounce from. That, it could be argued, might have been a pale echo of the opportunity that cropped up in December.
But to be making a bullish call after a near vertical spike in prices brings the index back near the highs? Please sir.
As for all the fear that “worst case” pricing would stir up? Ah, I don’t think so. VIX is just one measure, but compared to its spike in December Babu wants to know “where is fear Jerry? SHOW me fear!”
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