This is The Takeaway from today’s Morning Brief, which you can register delivered to your inbox Monday through Friday by 6:30 a.m. ET with:
Confession again: I’ve been covering the financial markets for 20 years, and sometimes I don’t quite understand the jargon. To be fair, there are a lot.
Take “melt”. Imagine dripping from an ice cream cone rising skyward rather than coming closer and closer to your hand on a hot day, as I do every time I hear this phrase. Now delete this image, because apparently it has nothing to do with the real phenomenon.
Fortunately, I have plenty of help in the form of stock market veterans.
“It’s just Wall Street slang, basically, for a market that won’t go down, even though there are headlines that say it should,” said Tom Essaye, founder and chairman of Sevens Report Research.
Where the cast comes into play, Essaye explained, is the diffuse nature of the rally. It continues, attracting more shares and ultimately attracting more investors who might have been reluctant to pursue it. Witness the range-bound S&P 500 which broke Friday and ended yesterday with a 20% rally from the mid-October low. Friends, we have entered a new bull market.
Keep an eye on which stocks are participating. Most of the gains this year have come from a handful of large-cap tech stocks, buoyed by AI enthusiasm. The rise on Thursday and Friday was broader, as evidenced by the ratio of the S&P 500 index to the equal-weighted S&P 500 index (the small dip at the end of June is the equal-weighted taking a bite out of standard S&P 500 index).
The longer the overall rise persists, the harder it is to ignore. “If you’re underweight, you must be waking up today feeling nervous. Because this thing has short-term momentum, and you’re missing it,” Essaye told Yahoo Finance. Essentially, the FOMO crowd can start to come out of the woodwork to chase the rally.
But as usual on Wall Street, there is no shortage of opinions on how long the rally will last.
On the bearish side of the ledger is Morgan Stanley (as usual), whose strategists predict a 16% decline in US corporate earnings by year-end, with the S&P 500 falling to 3,900.
Then there’s Evercore ISI’s Julian Emanual, who raised his year-end target for the benchmark to 4,450 after Friday’s jobs report, and reminded investors that stocks can increase even when earnings per share fall – as long as the results are “less bad” than feared. .
I’m back to ice cream after all. We’ll see if he continues to defy gravity.
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