The S&P 500 topped 4300, a level not reached since August 2022.  Many pundits are now drastically reducing the odds of a recession.  They may be correct, the window for a major economic slowdown greatly diminishes as we get closer to the November 2024 Presidential re-election.  [ Much more about that topic in future posts and podcast episodes. ]

But an un-recession doesn’t guarantee a rising stock market…valuations are stifling high, as profit estimates get revised lower.  Continuing the theme of “it’s different this time”…note the below chart which illustrates that the stock market is essentially in the same place it was exactly 12 months ago…just before that summer’s selloff.  [ The chart plots an equal weighting of the S&P 500 (RSP), to squelch some of the noise created by the recent AI craze.  A pure S&P 500 (SPY) chart would show that the market has already reached the level of the August 2022 failed relief rally…which preceded the October 2022 crash. ]

In June 2022, the market was trying and failed to breakout of a double bottom pattern that was induced from excessive inflation (which peaked that month at 9.1%); escalation of Fed rate hikes (the first of three successive 75bps occurred that month); and realization of a protracted Ukraine war (authorization for high efficacy offensive weapons systems like HIMARS began that month).

So what’s different this time to prevent a summer stock market meltdown?  Inflation has been drastically reduced but it’s still more than twice the target and will be problematic to tame without a recessionary slowdown.  The Fed is likely at or near the end of raising rates but consensus is forming that rates are staying higher for longer.  The Ukraine “special military operation” now 16 months old, has morphed into a protracted hot war of attrition with Ukraine just now launching a fierce counteroffensive.   [ The stock market hasn’t been frazzled by destruction of the Nord Stream Pipeline nor the Kakhovka Dam, perhaps it will take tactical nukes to spook the market. ]

The tally doesn’t look that encouraging.  Inflation and rate hikes are better but still historically high and geopolitics are the worst in generations.  Additionally, valuations are much higher than last summer. 

For now, my money is still betting on another summer stock market selloff.

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