Market melt-up left stocks vulnerable to a sharp reversal

Market melt-up left stocks vulnerable to a sharp reversal

The US stock market moved almost exclusively in one direction this fall: up. This relentless rally has carried the S&P 500 more than 9% higher between October 2 and the end of November. The index hit 11 record highs last month alone — in just 20 trading days. Selloffs were virtually nonexistent as investors, afraid of missing out on the fun, stampeded back into stocks. Melt-ups feel good — at least for those invested in stocks. But because they aren’t built on fundamentals, they make markets vulnerable to sudden pullbacks. Nothing goes straight up, not even the Nasdaq . The recent market melt-up has left stocks priced for perfection. In other words, investors are banking on a preliminary trade agreement between the United States and China in the next two weeks. And Wall Street is betting that the worst is was over for the economy. Any deviation from those assumptions could disrupt the rally. “When everyone is leaning one way, eventually something can tip the scales the other way,” said Keith Lerner, chief market strategist at SunTrust. Trade war fears return The scales tipped on Monday. First, the Institute for Supply Management said the American manufacturing downturn unexpectedly worsened in November . Manufacturing has now contracted for the fourth month in a row. “The sector is stuck in a mild recession with little prospect of a near-term revival,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a note to clients on Monday. Then US Commerce Secretary Wilbur Ross […]

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