🍔Momentum Crashed

Is this the top for the market? We are at a critical juncture for investors.

Happy Independence Day to our US readers! We are on Day 61 of a ferocious bull rally that has lifted the market 30%. By historical standards, an unusual move. We have warned investors time and time again about the opportunity cost of missing out on these lockout rallies. Holding too much cash is the number 1 worst thing you can do to your portfolio.

In "The Most Important Lesson" we wrote that the most important objective of market timing is not avoiding selloffs, but participating in rallies. This is the secret to making money in the long run. It’s why market timing is so important in order to maximize gains.

So where does the market go from here? Is now the time to sell? Will there be another chance to buy the lows? Let’s dive into the data…

Bullish mood

The market put up a great week before the Independence Day holiday. Several factors contributed to the upbeat mood, including the [inevitable] passage of Trump’s Big Beautiful Bill combined with beneficial econ data. Investors were focused on 4 key events: the budget bill, trade negotiations, business sentiment, and jobs.

The BBB has now passed both the Senate and House and was signed into law on Friday. This bill extends the 2017 tax cuts while introducing new tax breaks and cutting spending in Medicaid, SNAP, and clean energy programs. Whereas the prior tax cuts were pro-business, this one is said to be pro-individual. It also raises the debt ceiling by $5T, avoiding a tantrum later in the summer.

In trade negotiations this week, a new agreement was announced with Vietnam, setting import tariffs to 20%. Investors see trade deals as a foregone conclusion now, as threats and flare-ups are understood to be mere posturing. For example, there was a dramatic suspension of talks with Canada, only to resume the next day. Some people are worried about the EU and Japan deals falling apart, but as we wrote back in June, deals are inevitable as this chapter is coming to a close.

Business sentiment also showed signs of improvement this week, with ISM Manufacturing and ISM Services both rising. These numbers suggested that factory and service sector confidence was stabilizing or recovering from the April tariff hysteria. This is also having a tremendous positive effect on earnings estimates for stocks; we argue this has been the main driver of the V-shape recovery in SPX.

Lastly, the June jobs market was excellent. Payrolls rose, unemployment fell to 4.1%. While some job gains were driven by state and local government hiring (as opposed to private businesses), the overall theme was that recent policy changes did not significantly damage the economy.

The question now is whether we have run out of good news to propel the market further. Many analysts have started to call the top of the market. Whether you are fully invested and looking to sell, or holding cash waiting for a dip to buy, this is a critical juncture. Here's how we see it playing out…

Too early to cut (Why the bond market was wrong)…

The rest of this article is for premium members. Today’s post covers:

• Odds of a rate cut fell off a cliff

• Money drives markets

• Momentum crash; is now the time to buy small caps?

• Sectors to watch

• Chart analysis