The stock market is moving beyond doomsday scenarios.  That may be true.

Always look on the bright side of life, Monty Python once sang, and it’s a message the stock market seems to be taking on board.

Of course, us pessimists, including yours truly, are focused on what could go wrong. The Federal Reserve has raised interest rates by five percentage points over the past 14 months, and it’s not yet possible, if central bankers like Dallas Fed President Laurie Logan and St. Louis Fed President James Bullard are to be believed.

Although the banking system is stabilizing, it is still under pressure with the tightening of lending conditions. Leading indicators have fallen for 13 straight months, the longest streak since the 24-week streak that ended in March 2009, pointing to a possible decline in the coming months.

And the debt ceiling is still unresolved, prompting none other than Bridgewater Associates’ Ray Dalio to warn that it would lead to a “disastrous financial collapse.”

The stock market doesn’t seem to care. It

S&P 500:

rose 1.7% this past week and even on Friday, when it was hit by the double whammy of Republicans pulling out of debt ceiling talks and Treasury Secretary Janet Yellen said more bank mergers were likely, suggesting continued problems in the financial system. the index fell just 0.1 percent, responding to the news with the equivalent of a shrug.

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In fact, the market appeared to be pricing in a debt ceiling deal that few would point to as the most likely outcome, while focusing on the fact that inflation is coming down, not that it’s still higher than the Fed would like. Arguably, the market is indeed acting like the most disturbingly optimistic person we know right now.

But there’s no arguing with that. We mere mortals can worry about the debt ceiling and what it will mean for the value of the cash we hold in money market funds and our stock portfolios. We can worry about egg prices. We can worry about suggesting investors buy stocks only to see them get wiped out. The stock market, however, doesn’t have to think about those things. It only goes up or down.

It’s hard for the market to really sell if no one actually owns the stock. UBS analyst Sean Symonds notes that positioning in US stocks is two standard deviations below the average across all types of funds, with balanced and long/short fund allocations particularly pessimistic, according to the bank. Fund withdrawal rates are also high. This does not make Simmonds any more optimistic about the stock market. there is still “high risk of short-selling,” he says.

However, it raises the question of who will sell, especially after the treacherous path the stock has taken over the past 16 months. First, it was the bear market that sent the S&P 500 down 25% from peak to trough, while pulverizing the biggest, most popular stocks, including Apple ( AAPL ), Microsoft ( MSFT ) and :

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Most recently, the pain of seeing what worked in 2022 crumble while Big Tech and only Big Tech lifted the S&P 500 from its deepest lows, leaving investors wondering if buying now means they will. the top. But if outside investors get off the fence and decide to buy, that can only push the stock higher.

At the same time, it’s fair to ask what the market is thinking. According to Société Générale, he’s bullish on stocks taking advantage of the AI ​​trend, without which the S&P 500 would have fallen 2% instead of 8% through May 12. And it has a love affair with its biggest holdings, Nvidia (NVDA), Alphabet (GOOGL) and the aforementioned Apple, Microsoft and Amazon, which make up more than a fifth of the S&P 500 and also have taken advantage of the AI ​​theme. .

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For many, the narrow market breadth is another reason to bear down on the S&P 500. But that’s not always the case. These five stocks now account for more than a fifth of the S&P 500, said Brian Belsky, chief investment strategist at BMO Capital Markets, up from 17%, and previous peaks in concentration have resulted in an average gain of 4.1% for the index. in the next six months.

What’s more, the gains were led by the index’s smaller stocks rather than the big boys, with the equal-weighted S&P index up 13.9% on average. “The highest concentration of market cap [the] The S&P 500 is not necessarily detrimental to performance,” Belsky writes.

We often forget that the market rarely breaks under the weight of negativity alone, and boy, are people negative. The University of Michigan’s sentiment survey remains well below its long-term average after hitting at least a 40-year low last June. Whenever the index dipped below 59, it was a good time to buy stocks if one had a two- to five-year horizon, according to Nicholas Colas, co-founder of DataTrek Research. “Mood when it’s this anxious is always a negative indicator,” he explains.

If we just whistle past the cemetery.

Write Ben Levisohn at



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