There is a growing fissure between what data from the market are saying and the perception from the bond market. San Francisco Fed President Mary Daly did a good job of pointing out major instances where data and sentiment went in opposite directions. First in December where data was good yet business sentiment was bad. Her worry is if the data and sentiment remain out of sync that sentiment will start take over and become a self-fulfilling prophecy causing the data to worsen.
It feels to me that is happening now as well. GDP forecasts are not flying over 3% but they are also not negative. Employment is at 50 year highs. Inflation is well in check. And the economic expansion is about to reach record length. Yet the bond market is pricing in a rate cut in the near future.
All I can do while this sorts out is to look at the truth, price action. The current price action favors the worriers. The S&P 500 broke the neckline of a Head and Shoulders top last week and continues lower. The chart above shows this gives a target move to 265 in the SPY ETF. Protect your capital. Look for stocks showing relative strength. And prepare for a possible turn around if data should start to win out.
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