Did you know that each time the stock market fails to rally, the bears come out of the woodworks?

What’s interesting about this bull market, however, is how disbelieved it continues to be, and so far, three camps of market skeptics exist, with the first two camps of skeptics being here for the last two years, and the third camp emerging late last year.

For today’s edition of Equity Eats, we will explain the three theories circulating among market skeptics:

• The First Camp: First, some argue that due to the Fed’s tightened interest rates, we will see a decline in the stock market 📉

• The Second Camp: Next, others present the hypothesis that inflation will remain high, inevitably forcing the Fed’s hands 📈

• The Third Camp: Finally, this group points to the advent of AI as a sign of the stock market being overvalued, with a stock market decline as a consequence 💥

Join us as we critique the critics of today’s market, discovering if there is anything to what they’re saying.

The First Camp 📉

The first camp argues that the Fed has tightened interest rates too much.

In addition to that, due to the “long and variable” lags of monetary policy, we will soon see the economic strains emerge, such as:

1. Stresses in corporate balance sheets,

2. A rise in corporate defaults,

3. An increase in layoffs, and

4. Sputtering private consumption.

According to this line of thought, the oncoming recession will soon lead to a sharp decline in the stock market.

We’ve been waiting for close to two years, but still no signs 🔍

The Second Camp 📈

The second camp has argued that inflation will remain high, forcing the Fed to raise interest rates further.

However, since inflation has come down faster than expected, this camp has tweaked their view, and now argues that even though inflation has decelerated faster than expected, the economy is now expanding too quickly to allow further disinflation 🚀

Therefore, inflation will remain stubbornly above the Fed’s inflation 2% target, thereby preventing the Fed from cutting interest rates.

Since investors have been buying stocks in hopes that the Fed will cut interest rates, the market is set up for disappointment since rate cuts will not be possible in the face of sticky inflation.

The higher-than-expected inflation numbers in January and February has given this camp of skeptics renewed confidence in their view 📊

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The Third Camp 💥

The third camp argues that better-than-expected economic performance combined with irrational exuberance over AI technology has led the stock market to become overvalued.

Therefore, we are inevitably headed to a sharp stock market decline, just as we’ve seen with other stock market bubbles throughout history 📖

Will any of these camps be right?

So far, it appears not! ❌

Inner Circle Macro Update 🔍

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