The market fell hard on Wednesday afternoon, S&P 500 was down -1.47%. It was a sudden reversal after weeks long rally. However, there was no catalyst for the selling besides what was stated before:
 

Profit taking – given that everything, all stocks I have in my watchlist as well as holdings were red except GOOGL and cash equivalents like ICSH and SGOV. That tells me the investors were taking profits and reducing exposure as holidays are approaching.
 

Mixed FED officials’ talk about interest rates cuts. Some say the cuts will happen early ibn 2024, others say: “hold your horses.” None of it is news anymore, so if the markets are reacting to this, they are overreacting. On top of it, Morgan Stanley’s economists (whoever they are) said that the cuts will not happen until June. Given that Morgan Stanley has been bearish the entire 2023, they have an interest in market’s crash. Bears lost over $178 billion this year.

We now need to wait to see if this continues. It still can be a one day overreaction or we may see continuation of selling the rest of the week. Since there is no serious catalyst for this selling, I would lean towards a one day selling and then a slow move higher. Even tomorrow morning we may see selling to continue (though on slower pace) and then a slow down and possibly a reversal.

This could be a good opportunity to add stocks to investors’ portfolios. But if you are trading (for example options as I do) and you have a bullish exposure, you may want to wait before adjusting your trades. Last few weeks, I adjusted a few of my trades and it turned out to be a disaster. I still think, this is a bear trap.

The recent drop in the stock market represented by S&P 500 index can be attributed to several factors:

Profit Booking:

Investors have been cashing in on their gains after a period of significant market growth. This move to secure profits has led to a sell-off, contributing to the market decline. This could be the most obvious reason for the sudden drop. Investors are preparing for year end and going for vacation, thus closing their exposure to the market.

Broader Market Decline:

Despite tech stocks like Google-parent Alphabet and others such as Meta Platforms and Amazon saw increases. Alphabet, in particular, gained more than 2% and reached a new 52-week high the markets were collectively impacted by other not so good news. While tech and energy stocks were driving gains, FedEx, another major component of the broader index, saw a decline due to a disappointing revenue outlook and fiscal second-quarter results that fell short of expectations. Not just large-cap stocks, but also mid-cap and small-cap stocks have been affected. These segments had outperformed large-cap stocks in the past but are now experiencing a downturn.

Rise in Crude Oil Prices:

Increased crude oil prices, due to supply constraints and growing demand, are impacting economies, particularly those dependent on oil imports like India. This has led to increased inflation and economic uncertainty. Oil prices are further impacted by concerns in the Red Sea region.

Federal Reserve Policy Expectations:

Despite some Federal Reserve officials turning hawkish, the market remained upbeat on the rate cut expectations for 2024. This optimism contributed to the market’s rise, although it’s important to note that the Federal Reserve has indicated a more cautious approach to rate cuts than what the market anticipates

But despite the sudden drop, I would be cautious adjusting any trades or chasing the downside. It can be a shakeout or a trap. The market may close down today (which could be obvious after several days of a relentless rally, but in the next few days it can be going up again and any short positions can hurt you.

The Internet and social media is full of debates and fights between people comparing government debt to personal finances and showing how the US is doomed using the budgeting tool used by individuals or families. But the Governments do not operate at this same level. In the intricate world of fiscal policy, drawing parallels between government debt and individual or familial financial obligations can be a tempting yet misleading endeavor. The nuanced differences between the two realms necessitate a closer examination, challenging the oversimplified narrative that often proclaims the imminent doom of nations burdened by debt. In this exploration, we delve into the distinctive characteristics of government debt and its intricate relationship with personal finances, unraveling the complexities that underpin these economic dynamics.

Purpose of Debt:

In the microcosm of personal finance, individuals and families embark on debt for personal consumption or investment undertakings. The acquisition of a home, pursuit of education, or the procurement of an automobile exemplify the motivations behind personal debt.

Conversely, at the macroeconomic level, governments assume debt as a strategic tool for advancing broader economic objectives. Infrastructure development, provision of public services, and the implementation of economic stimulus measures constitute the multifaceted purposes that underlie government indebtedness.

Revenue Sources:

The divergence between individual and governmental revenue streams further amplifies the distinctions between personal and national debt. While individuals predominantly derive income from salaries, investments, and personal endeavors, governments wield a diverse array of revenue-generating mechanisms. Taxes, tariffs, and fees furnish governments with the fiscal latitude to mobilize resources for servicing their debt—an option not available to the average household.

Debt Repayment Capacity:

At the crux of the comparison lies the disparate capacity for debt repayment. Individuals and families are subject to the constraints of their personal financial standing, facing the specter of bankruptcy in the event of financial turmoil. Contrastingly, governments, especially those endowed with sovereign currencies, possess the extraordinary ability to create money ex nihilo to meet their debt obligations. While not without consequences, this prerogative sets governmental debt dynamics apart from the more immediate repercussions faced by individuals.

Economic Impact:

The ramifications of debt reverberate differently in the micro and macroeconomic spheres. Personal debt exerts a direct influence on individuals, shaping their capacity to spend, save, and invest. In contrast, government debt assumes a role of broader economic significance. Prudent utilization can catalyze economic growth, but the mismanagement or excess of sovereign debt may instigate fiscal challenges, inflationary pressures, or other systemic economic issues.

Time Horizon:

The temporal dimension further complicates the comparison. Personal debt adheres to specific terms, with individuals facing immediate consequences for default. Governments, operating on significantly elongated time horizons, possess the latitude to refinance or roll over debt, with the effects of fiscal policies unfolding over extended periods.

Conclusion:

While the analogy between government and personal debt is fraught with limitations, the assertion that a nation is “doomed by debt” warrants nuanced consideration. Excessive government debt raises legitimate concerns, encompassing interest burdens, inflationary risks, and fiscal policy constraints. However, the intricate interplay of economic factors, the purpose of debt, and the government’s fiscal acumen introduces a layer of complexity that defies facile conclusions.

In the case of the United States, the ongoing discourse surrounding its debt trajectory reflects a dynamic economic landscape. Historically, the U.S. has demonstrated resilience and adaptability in managing its debt, bolstered by the unique advantages conferred by the global economic system and the U.S. dollar’s status as a reserve currency. To comprehensively assess the impact of government debt, one must scrutinize the broader economic context and the specific conditions surrounding fiscal policies. In navigating these complexities, a nuanced understanding emerges, challenging dogmatic declarations about the destiny of nations ensnared in the web of indebtedness.

Ah, the world of finance, where trends come and go faster than a hot stock tip. Just a few months ago, it seemed like everyone was in a frenzy over the 60/40 portfolio, as if it were the investment equivalent of a unicorn riding a rainbow. But guess what? It never really left, and now, the same people who were freaking out are acting like they’ve discovered a hidden treasure in their grandma’s attic.

Let’s rewind a bit to the not-so-distant past when the financial world collectively lost its marbles over the 60/40 portfolio. People were treating it like the secret sauce to financial success, as if it had just been invented by a team of genius investment wizards. Social media was abuzz with infographics, webinars, and hot takes on how this portfolio strategy was going to make us all rich overnight.

Fast forward a few months, and suddenly, it’s the “return” of the 60/40 portfolio. News headlines scream, “The 60/40 Portfolio Is Back and Here to Stay!” It’s almost comical how everyone seems to have forgotten that this investment strategy has been around for ages. It’s like claiming that bicycles are making a comeback in 2023, even though they’ve been a mode of transportation since the 19th century.

What’s truly amusing is how quickly people jump ship when there’s even the slightest market turbulence. They panic-sell their investments, run for the hills, and then act surprised when they hear that the 60/40 portfolio has been a steady performer all along. It’s like someone abandoning their trusty old car because they heard that electric scooters are the future, only to realize that their car still gets them from point A to B just fine.

In reality, the 60/40 portfolio has always been a sensible and balanced approach to investing. It’s not a trendy fad that comes and goes with the seasons; it’s a timeless strategy that suits a variety of investors and market conditions. But let’s not let that get in the way of a good story, right?

So, here’s a little reminder for those who tend to forget: the 60/40 portfolio didn’t disappear, and it’s not making a grand comeback. It’s been quietly doing its job all along, weathering the storms of market volatility, and providing investors with a reliable, long-term strategy. Perhaps it’s time to stop chasing after the latest shiny object in the financial world and appreciate the steady wisdom of the good old 60/40 portfolio.

In the dynamic world of financial markets, the recent rally is not confined to a select few but resonates across the entire spectrum of equities. While the “7 magnificent” stocks have been in the spotlight, the extension of the rally to the S&P1500 index indicates a broader resurgence. This comprehensive analysis explores the multifaceted factors underlying a bullish market momentum, delving into the nuanced transformation of investor sentiment, the pervasive influence of FOMO, the resilience of the labor market, compelling economic underlying data, and the demographic shifts, with a particular focus on the impact of millennials entering the workforce.

The chart above shows that more and more stocks started participating in the rally after a long consolidation. The chart below reinforces this even further:

 

(Credit: Ciovacco Capital Management)
 

Improving Investor Sentiment: A Catalyst for Market Resilience

At the core of any market lies the collective sentiment of its investors. In recent months, we’ve witnessed a discernible shift from cautious optimism to unwavering confidence. Strong corporate earnings, successful vaccine rollouts, and the gradual reopening of economies have collectively shaped a more favorable market outlook. This metamorphosis in sentiment is palpable in the increased risk appetite among investors and a renewed interest in equities.

The sustained improvement in investor sentiment is bolstered by the realization that companies have adapted to the challenges posed by the pandemic. Resilient businesses have not only weathered the storm but have demonstrated an ability to thrive in a dynamic environment. As a result, investors are increasingly confident in the adaptability and durability of the market.

FOMO Amplified: Unleashing the Power of Market Dynamics

The psychological phenomenon known as the Fear of Missing Out (FOMO) has become a driving force in the current market narrative. As the rally gains momentum, investors who initially hesitated or remained on the sidelines now feel a compelling urge to participate in the upward trend. The fear of missing out on potential gains acts as a potent motivator, leading to a surge in buying activity that further propels the market’s upward trajectory.

This FOMO effect is not confined to individual retail investors; it resonates within institutional circles as well. Large institutional players, from hedge funds to pension funds, are keenly aware of the market’s upward trajectory and are adjusting their strategies to avoid being left behind. The fear of underperformance in a bullish market is a powerful incentive for fund managers to reassess their asset allocations and participate in the prevailing market momentum.

Labor Market Resilience: A Pillar of Economic Strength

A robust labor market is often a leading indicator of a healthy and thriving economy. Current trends in employment figures play a pivotal role in driving the bullish momentum in the market. Job creation, declining unemployment rates, and wage growth are all indicative of economic strength. As businesses rebound from the unprecedented challenges posed by the pandemic, consumer confidence is on the rise, creating a positive environment for sustained market growth.

The resilience of the labor market is particularly noteworthy as it reflects not only the recovery from the pandemic-induced downturn but also the adaptability of businesses to new economic realities. Remote work, digital transformation, and evolving consumer behaviors have prompted companies to reevaluate their workforce strategies. The ability to navigate these changes successfully has contributed to the overall confidence in the economic recovery.

Economic Underlying Data: Unveiling the Solid Foundation

Beyond the surface-level fluctuations of the market, a deeper examination of economic indicators reveals a robust foundation supporting the ongoing rally. Key metrics such as GDP growth, manufacturing output, and consumer spending are all showing positive signs of recovery and expansion.

Gross Domestic Product (GDP) growth is a key metric reflecting the overall health of an economy. The positive trajectory indicates that the economy is expanding, driven by increased production, consumption, and investment. Manufacturing output, a crucial component of economic activity, is also rebounding, indicating a revival in industrial production. Consumer spending, a key driver of economic growth, has shown resilience as households have adapted to the changing economic landscape.

The collective strength of these economic indicators provides a solid underpinning for the market’s upward trajectory. It suggests that the current rally is not merely a result of speculative trading but is grounded in the fundamental resilience and recovery of the broader economy.

Demographic Shifts: Millennials as Catalysts of Market Evolution

Demographic shifts have long been recognized as significant drivers of economic and market trends. The entry of millennials into the workforce emerges as a notable factor propelling the bullish narrative. As this generation matures, their increasing activity in the investment landscape contributes to the growth of retirement funds and other long-term investment vehicles.

Millennials, born between the early 1980s and the mid-1990s, have reached a stage where they are actively participating in the labor market, earning disposable income, and making investment decisions. This demographic cohort is characterized by a preference for digital platforms, a focus on sustainability, and a unique approach to financial planning. The influx of millennial investors introduces a new dimension to market participation, further fortifying the case for a sustained secular bull run.

The millennial impact extends beyond mere participation in the market. As this generation matures, significant wealth transfer is expected to occur, further influencing investment patterns and market dynamics. The values and preferences of millennials, including a penchant for socially responsible investing and a digital-first mindset, are reshaping the investment landscape.

Market Momentum Conclusion

In conclusion, the ongoing market rally extends far beyond the confines of the “7 magnificent” stocks, with the S&P1500 index reflecting a broader and more inclusive uptrend. Bears and perma bears, who may have anticipated a protracted downturn, now find themselves confronted with a compelling amalgamation of factors suggesting otherwise. From the evolving landscape of investor sentiment and the formidable force of FOMO to the resilience of labor markets, encouraging economic data, and the transformative impact of demographic shifts, myriad elements converge to depict a market that is not only bullish but also poised for a sustained and resolute secular bull run.

While investors should always exercise caution and conduct thorough research, the current indicators strongly suggest that bears may need to reassess their stance in the face of an enduring and robust bull market. The multifaceted nature of the factors driving this rally indicates that the market’s momentum is not merely a fleeting trend but rather a manifestation of underlying economic strength, investor confidence, and demographic shifts that collectively contribute to the narrative of a prolonged and resilient bull market. As we navigate the complexities of the financial landscape, staying attuned to these diverse factors will be crucial for investors seeking to navigate the evolving dynamics of the market with confidence and informed decision-making.

Oracle (ORCL) reported earnings after market close today, and Wall Street didn’t like it. The stock is down 8% after hours, as is typical for Wall Street’s hysterical overreaction these days. But that could make Oracle a good options play.

The stock traded at $115.13 at the close and crashed 8.82% to $104.97 in after-hours trading after weaker sales than expected. This again shows how short-sighted investors are.

But, this behavior provides an excellent opportunity for savvy investors and traders who can take advantage of the panic selling. As of now, I cannot say whether the stock would fit nicely into my Crumbs strategy or not. I will have to evaluate it when the market opens tomorrow morning and new option prices will be available. If the premiums on 2 SD strikes (close to 20% below the current market) will be favorable, this will be a great opportunity to grab some money from Wall Street panicking investors.