The 7 week losing streak was broken this week, with significant moves higher by all indexes. This is encouraging because often the Markets move lower ahead of a long holiday weekend. It’s also encouraging because the move higher occurred without an announcement of material good news.
In fact, the news is just dreadful- no end in sight for the Ukraine situation, shortages persist, layoff announcements…yet the indexes appear to have bottomed mid-May. Both the Small & Mid Caps are up nearly 10% from the recent bottom.
As is usually the case, the Markets are rising as negative sentiment persists. Negative investor sentiment has been more than two standard deviations higher than the 40 year norm. Sentiment is low because a lot of bad things MIGHT happen…on the other hand, lots of GOOD things are in place.
Employment, Disposable Income, Debt Service, Corporate Earnings…are better than average.
But negative sentiment has driven Mid Caps down almost 13% from their November 2021 high, while the more volatile Small Caps are down nearly 23%. This is at a time when forward earnings for the Small & Mid Caps are projected to be a bargain basement valuation of around 12!
I think the selloff has been way over done. The Small Caps have bounced off their long term moving average and the Mid Caps never got that low. In my contrarian mind, opportunity is knocking.
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