In the contest of the worst forecasters, the analysts have easily outperformed the forecasters. Those who predicted a significant correction in U.S. markets missed the mark.
The indices, especially the S&P 500, have avoided a downturn despite high Fed rates and persistent inflation and reached new all-time highs.
Investors seem reluctant to dump seemingly overvalued stocks (such as Nvidia), perhaps because they are optimistic about the economy's future.
According to Yahoo Finance, most (54%) investors believe in a soft landing, a scenario in which the U.S. economy could slow without falling into a recession.
A boom in share buybacks has further boosted the market. In May, U.S. companies unveiled plans to buy back $201 billion of their own shares, the highest ever in a single month.
This total represents a remarkable 41% increase over the previous year and ranks as the fifth-highest volume of repurchases recorded in a month.
As André Kostolany, a famous stock market figure, used to say, as long as capital is available and investors have optimistic prospects for the future, markets will continue their ascent.
However, it is also true that a market correction only requires a significant trigger, similar to a strong gust of wind. Although inevitable, it remains challenging to determine the timing.
What could trigger such a drop?
There are many potential culprits, from the commercial real estate market and regional banks to geopolitics, the failure of zombie companies, or even a debt crisis.
And the current situation?
Every dip following negative news, such as a hawkish tone from the Fed, is still greeted with buying. However, analysts speculate that equities may have peaked this summer.
Their reasoning is sound: profit margins are at their peak, earnings growth is slowing, net interest expense is about to rise, and stock valuations are too high.
Others offer more assertive warnings, suggesting that stocks could be headed for another significant sell-off, possibly resulting in a 10% decline in the S&P 500 by the end of Q3.
Recognizing that markets have their rhythm and can remain irrational for extended periods is crucial. Predicting a trend reversal is a formidable challenge.
Even the likes of Michael Burry, immortalized in “The Big Short,” have repeatedly seen their forecasts of impending catastrophe go unfulfilled.
So what should investors do?
Strive to filter out the noise and focus on the facts. Pay close attention to macroeconomic indicators on the economic calendar.
In addition, consider the market's technical aspects, including support and resistance levels, trading volumes, and general sentiment.
