To summarize, in June the fiscal debt ceiling was finally resolved and the Fed finally paused rate hikes. Those two events encouraged retail gamblers to embrace stocks at the fastest pace since the Gamestop melt-up in early 2021. What I call the left shoulder of the pandemic head and shoulders top. That retail stampede forced hedge funds to cover and otherwise go net long the most since the all time high in late 2021, which is the head.
Which is why entering July, bulls are claiming victory over bears:
"As the trillion-dollar artificial intelligence rally gathers pace, pity the humans on Wall Street trying to figure out this gravity-defying market"
Pity the fools who dare to question artificial intelligence. Where to begin...Suffice to say, this type of hubris in algo-fabricated Disney markets will not go unpunished.
The problem with the bullish victory hypothesis is that the rationale for over-allocating to risk no longer exists. This week the FOMC minutes confirmed that rate hikes are set to resume. Fed futures now put a July rate hike at over 90% which is a mere 2.5 weeks from today.
The two sectors that were the most sensitive to rate hikes in the past year were Tech stocks and bank stocks. Recall that regional banks spontaneously exploded in March of this year when the Fed shocked markets with a hawkish pivot. Now we see short-term rates have round-tripped back to the March highs.
For Tech stocks, this new hawkish pivot is even more precarious. The entire melt-up from the March lows was predicated upon a Fed pause which no longer exists. Now Tech bulls are way over their skis in the sector that is most likely to implode next.
Another problem for bulls is that the Yen carry trade is rolling over again.
Globally, things are even more precarious for this fraudulent rally.
In summary, bulls are claiming victory in the midst of battle.
Probably because they have no defense and their offense is spent. They have no plan B for when this all explodes.
And round 2 is about to begin.
