When Will the Stock Market Crash?

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Sarah Ming and Alex Harring of CNBC report the S&P 500 closes nearly 1% higher on softening inflation data, nabs 3rd week of gains: 

Stocks rose Friday with the Dow Jones Industrial Average and S&P 500 closing out their third winning weeks in a row as a measure of inflation closely watched by the Federal Reserve came in at its lowest in nearly two years.

The Dow jumped 176.57 points, or 0.50%, to 35,459.29. The S&P 500 added 0.99% to 4,582.23. The Nasdaq Composite gained 1.90% to 14,316.66.

All three major averages notched weekly gains with the 30-stock average up by about 0.66%. On Thursday, the Dow ended a 13-day win streak, a length not seen since 1987. The S&P advanced 1.01%, and the tech-heavy index is up 2.02%.

This week, investors cheered data showing cooling inflation and stronger-than-expected earnings reports that supported the case the U.S. could avoid a recession.

On Friday, June data for the personal consumption expenditures price index continued to show easing inflation. The gauge showed core PCE gained 0.2% month-over-month, in line with the 0.2% increase expected by economists polled by Dow Jones. Core PCE rose 4.1% from the year-ago period, lower than the anticipated 4.2%.

The data is of particular interest after the central bank raised interest rates earlier this week in a widely expected move. The Fed targets inflation at 2% annually.

“In the wake of stronger than expected GDP, and a better-than-expected earnings season, this could be the catalyst to send the market to new highs,” wrote Gina Bolvin, president of Bolvin Wealth Management Group.

Earnings season continued with Dow member Procter & Gamble shares gaining nearly 3%. The consumer goods company behind Tide and other brands beat analysts’ earnings and revenue expectations in its most recent quarter.

Intel jumped 6.6% as investors applauded a return to profitability, while Roku climbed 31% a day after beating Wall Street expectations on both the top and bottom lines.

On the other hand, Ford Motor shares fell 3.4% even though the automaker beat estimates and raised guidance. The company said its electric vehicle adoption was taking longer than expected due to higher costs.

It's Saturday, and I have one question on my mind, when will the stock market crash?

I know, it's much easier being bullish, joining the ranks of Tom Lee and other well-known permabulls, but seriously, why is the stock market still going up and now 5% higher than it was when the Fed started hiking rates in March 2022:

The obvious answer is there's too much money, with too few brains leveraged up to the hilt, chasing too few stocks as FOMO reigns supreme.

Momentum begets momentum and I am personally seeing it in a bunch of stocks I track:



Amazingly, things are so frothy in tech land that even Cathie Wood's Ark Innovation ETF has been rallying hard over the last couple of months:

Her top holding remains Tesla (followed by Coinbase and Roku) which has rallied sharply this year along with the rest of the "Magnificent Seven":


But something doesn't sit well with me, namely, as the stock market keeps "climbing the wall of worry" (more like soaring straight for the sun), multiples are being expanded like crazy in the dominant tech sector and people are rightly worried that a day of reckoning lies ahead:

Moreover, with the real Fed Funds rate showing policy hasn't been this tight since August 1987 and credit card rates soaring to new highs (21%) we haven't seen in a long while, you wonder how long can this FOMO game go on?

But all this is falling on deaf ears. 

In fact, this week, the biggest bear on Wall Street, Morgan Stanley's Mike Wilson, threw in the towel saying "we were wrong":

Indeed, nothing changes sentiment like price.

And I don't blame Mike Wilson, we could be at another bubble stage here where bulls ignore central banks and rates, keep levering up and bears get demolished.

Of course, smart strategists are sticking with their guns and not caving in:

Both Francois Trahan and David Rosenberg have consistently stated it takes time for all those interest rate hikes to work themselves into the real economy but we are reaching that point of inflection, at a time when all that stimulus money is running out fast. 

So all those FOMOers and YOLOers chasing this rally blindly with no regard to risk might look really smart so far this year but when the music stops, they're the ones who will get clobbered the most.

So what is going to make the music stop? 

The easiest answer is central banks are going to make this stop by over-tightening well into a slowdown.

Eventually, something will break, it always does, and when it hits the fan, people will be running for the exits.

And while I realize "eventually" can be another year away, I agree with those who think this market is already running on fumes and when disaster strikes, it will hit it very hard.

Of course, I could be wrong, we might go higher and higher and higher, soar into the sky but I feel we are approaching a day of reckoning.

So far, it's been all about FOMO and admittedly, earnings have beaten (lowered) expectations, but the longer this nonsense and silliness goes on, the harder markets will get hit when people least expect it.

Maybe it is time to load up on those cheap puts. Maybe.

Below, Jeremy Siegel, University of Pennsylvania's Wharton School professor of finance, joins 'Closing Bell' to discuss if there's enough momentum in equities to keep the rally intact, whether the Federal Reserve is done with rate hikes, and more.

Second, Jeffrey Gundlach, CEO, CIO and Co-Founder of DoubleLine Capital LP, joins 'Closing Bell' to discuss the Fed's decision to raise rates by 25 bps, recessionary signals relating to the yield curve de-inversion and signals that core PCE moving down to 3% in the upcoming month.

Third, David Rosenberg, founder and president of Rosenberg Research, talks about the lasting effects of Covid-19 stimulus checks on the American economy. He was on "Bloomberg Surveillance" earlier this week.

Lastly, earlier this week, Federal Reserve Chair Jerome Powell held a news conference following the second day of meetings of the Federal Open Market Committee.

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