12 June 2023 - Thoughts on the Market

The markets have shifted into a strange, almost eerie compression since my last write-up. Volatility levels in multiple markets continue to drop to multi-year lows. In my nearly forty years of trading experience, I've seen this as always a warning signal of violent fireworks to follow. This compression can carry on for a while longer, but eventually, market conditions will explode in violent moves.

Stocks, for example, have continued their slow, ponderous climb, embracing all news, positive and negative, as yet another justification to buy still more stocks. Higher interest rates get shrugged off as being inconsequential. Tightening credit conditions are shrugged off, as the market couldn’t care less. Now that we have AI as the new market save-all, investors have decided that corporate profitability and efficiency only have one way to go; i.e., higher. Ignoring fundamentals is a dangerous strategy, and wearing blinders – or rose-colored glasses – is even more dangerous.