Did you know that Hungary experienced the highest rate of hyperinflation ever recorded, where prices doubled every 15.6 hours in July 1946?

With this in mind, it’s easy to remain calm when looking at today’s relatively stable market, despite the hysteria coming from media pundits and market makers.

Here's a snapshot of what we're covering:

• The Recent Stock Market Pattern: First, we’ll take a look at the cyclical highs and brief pauses, reflecting investor optimism tempered with caution 📊

• The Implications Of A Stretched Market: Next, we’ll give an analysis of the rally since October 2022, the S&P 500's valuation, and what it signals for future growth or correction 🔍

• Some Consolidation Is Needed: Finally, we’ll give some insights into the Federal Reserve rate cuts, bond yields, and the strategic need for market consolidation 👀

Dive into these topics with us as we provide concise, actionable insights designed to inform and empower investors of all levels.

The Recent Stock Market Pattern 📊

The pattern of the stock market over the last few weeks continues:

A sharp one-day rally that takes the S&P 500 to new all-time highs 📈

This is followed by a few days of slight declines, and those declines give way once again to a new sharp rally to new all-time highs.

At some point, we will get a breather that lasts more than a day or two.

So far, however, it hasn’t happened 🤷🏻

The Implications Of A Stretched Market 🔍

The stock market rally has been relentless going back to October 27, 2023.

The bull market really began on October 11, 2022.

The S&P 500 is up 44% since that time 📈

The P/E ratio on the S&P 500 is now sitting at nearly 21, which is above the 5-year average of 19 and the 10-year average of 17.

Perhaps the stock market is increasingly vulnerable to a correction, which is defined as a 10% decline.

After all, stocks averaged at least one correction a year going all the way back to 1929 📊

One could argue that we are overdue.

On the other hand, we have never had so much cash “sitting on the sidelines,” with $8 trillion sitting in money markets and CDs, and professional portfolio managers are still sitting on cash.

This means that the “buy the dip” mentality has the structural support of too many people having missed out on this rally.

There will be pullbacks, but they may fall far short of 10%, and they are likely to be short-lived 💨

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Some Consolidation Is Needed 👀

The probabilities of the Fed cutting rates anytime soon continue to recede.

Just a few weeks ago, the market was pricing in nearly a 100% chance of a cut at the June Fed meeting 📈

That probability has dropped to 70%.

Meanwhile, bond yields are rising.

Any time the bond yields rise and the odds of Fed cuts decline, equities are bound to experience a downward adjustment 📉

A few weeks of either a sideways or down market is probably needed to allow this bull run to refresh and continue.

Better that some healthy consolidation happens now rather than a sharper correction down the road 💣

Inner Circle Macro Update 🔍

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