{"id":10031,"date":"2023-05-17T14:56:05","date_gmt":"2023-05-17T18:56:05","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/why-stock-market-bears-are-inadvertently-supporting-a-rally-despite-some-bad-news\/"},"modified":"2023-05-17T14:56:06","modified_gmt":"2023-05-17T18:56:06","slug":"why-stock-market-bears-are-inadvertently-supporting-a-rally-despite-some-bad-news","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=10031","title":{"rendered":"Why stock-market bears are inadvertently supporting a rally despite some bad news"},"content":{"rendered":"
\n

The U.S. stock market has been doing surprisingly well so far in 2023 despite evidence of slowing economic growth, uncertainty about the direction of the Federal Reserve\u2019s monetary policy, troubles in the regional-banking sector, and the politics of the debt ceiling in Congress. <\/p>\n

The S&P 500
\n SPX,
\n +1.07%<\/bg-quote>
\n has advanced 7% year-to-date, while the tech-heavy Nasdaq Composite
\n COMP,
\n +1.15%<\/bg-quote>
\n has recovered 17.9% so far this year and the Dow Jones Industrial Average
\n DJIA,
\n +1.10%<\/bg-quote>
\n has shed 0.4%, according to FactSet data.\u00a0<\/p>\n

\n

So why has the stock market failed to drop on bad news?<\/p>\n

Tom Essaye, founder of Sevens Report Research, said negative expectations from both institutional and retail investors were \u201cinadvertently supporting stocks\u201d as the market\u2019s failure to decline on bad news prompts buying by investors who are underweight equities. <\/p>\n

\u201cThat dynamic has largely continued and it\u2019s one of the biggest reasons stocks seemingly can\u2019t drop on negative news,\u201d he wrote in a Tuesday note.\u00a0<\/p>\n

The dynamic Essaye described is a market concept called the \u201cpain trade\u201d which sometimes occurs when a majority of market participants have positioned themselves in a particular direction, but an unexpected market reversal causes significant losses for those who are caught on the wrong side.<\/p>\n

The concept is based on the idea that the stock market has a higher probability of moving in the opposite direction to a prevailing consensus and a tendency to extract the maximum pain from as many investors as possible.<\/p>\n

See: <\/strong>Why bears can\u2019t keep the stock market down despite bad news<\/p>\n

The S&P 500 index fell to a two year low in October 2022 as investors worried about elevated inflation and aggressive interest-rate hikes from the Federal Reserve. However, even though the broad market index has recovered some ground in 2023 as inflation has eased and the Fed refrained from raising interest rates further in May, the stock market still sees other persistent worries.<\/p>\n

Over the past year, institutional investors have removed nearly $340 billion in assets from the stock market, while individual investors have pulled nearly $30 billion, according to the S&P Global Market Intelligence. Meanwhile, money market assets have soared to a record high of $5.3 trillion, according to data from the Investment Company Institute.\u00a0<\/p>\n

Meanwhile, only about one-third of actively-managed mutual funds outperformed the large-cap S&P 500 during the first quarter of 2023, said Essaye, citing data from the Bank of America. <\/p>\n

The recovery in the S&P 500 has left investors and many active managers \u201cunderinvested and underperforming\u201d the S&P 500, wrote Essaye.\u00a0<\/p>\n

In this case, the pain trade is for stocks to move higher when a mass of market participants still remain bearish.\u00a0<\/p>\n

\u201cThat\u2019s why the pain trade remains solidly higher and the net result is that the longer the lengthy list of what \u2018could\u2019 go wrong \u2018doesn\u2019t\u2019 go wrong, the more the pain felt by underinvested and underperforming managers will intensify, and the more upward \u2018fuel\u2019 a market rally will have, as these managers chase stocks higher to increase allocations.\u201d\u00a0<\/p>\n

See: <\/strong>Here\u2019s the big thing holding up the stock market, says Bank of America<\/p>\n

As a result, if investors do get material negative news, for example a hard landing for the economy, a bounce back in inflation, another rise in Fed interest rates, or a debt-ceiling breach, then\u00a0 \u201cnone of this sentiment stuff matters \u2014 the S&P 500 will drop, and drop hard,\u201d said Essaye. <\/p>\n

However, if all the bad things do not materialize, the ability for the stock market to rally remains stronger as it\u2019ll be fueled by traders who are underinvested, setting up the market to jump higher, said Essaye.\u00a0<\/p>\n

U.S. stocks traded sharply higher on Wednesday, supported by optimism about a resolution of the debt-ceiling debate in Congress after President Biden expressed confidence about achieving a bipartisan deal.\u00a0<\/p>\n

Wednesday also marks the 8th consecutive day that the S&P 500 has not notched a move of 1% or more in either direction, which is the longest such streak since the\u00a029 trading day streak ending November 2021, according to Dow Jones Market Data.<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The U.S. stock market has been doing surprisingly well so far in 2023 despite evidence of slowing economic growth, uncertainty about the direction of the Federal Reserve\u2019s monetary policy, troubles in the regional-banking sector, and the politics of the debt ceiling in Congress. The S&P 500 SPX, +1.07% has advanced 7% year-to-date, while the tech-heavy […]<\/p>\n","protected":false},"author":1,"featured_media":10032,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-10031","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nWhy stock-market bears are inadvertently supporting a rally despite some bad news | iFintechWorld<\/title>\n<meta name=\"description\" content=\"The U.S. stock market has been doing surprisingly well so far in 2023 despite evidence of slowing economic growth, uncertainty about the direction of the\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/ifintechworld.com\/?p=10031\" \/>\n<meta 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