Hey, Ross here:
I’ve spent the past few days going through the market ahead of Q4.
And right now, some of the biggest forces underneath it are pulling in completely different directions.
That usually happens when the market is trying to shift into something new.
Take a look:
Chart of the Day
Money has been pouring into money-market funds and cash-like ETFs.
Three-month flows have climbed to levels we’ve previously seen around some major market lows.
That looks defensive.
Investors are clearly keeping a lot of money somewhere they can earn a yield without taking much stock-market risk.
But then look at what the “smart money” just did:
The NAAIM Exposure Index tracks how much stock exposure active investment managers – aka the “smart money” – are carrying.
Last week, they increased their exposure sharply.
In fact, it was the second-biggest weekly increase of the year.
So cash is piling up…
At the exact same time active managers are adding stocks.
And bonds aren’t making this any easier.
Fed-funds futures are now pricing three to four more 25-basis-point hikes over the next 12 months…
Including two within the next six months.
That’s a pretty obvious headwind.
More hikes mean tighter liquidity…
And potentially more pressure on stocks.
Except corporate America is doing this:
Earnings have been ripping higher this year.
But stock prices haven’t kept pace…
And the P/E multiple investors are paying for those earnings has actually fallen.
So despite all the talk about expensive stocks…
A big chunk of this year’s earnings growth has actually gone into making valuations less stretched, not more.
Now put all four charts together.
Cash is piling up on the sidelines…
Active managers are adding stocks…
The market is pricing more rate hikes…
And earnings are climbing while valuations compress.
We can’t reduce all these to a simple bullish or bearish.
There are too many forces pulling in different directions.
Which brings me to today’s Insight.
Insight of the Day
This is what a market in transition looks like.
This is the kind of market that makes people look stupid fast.
One group is hiding in cash.
Another is adding stocks.
Rates are still a problem.
Earnings keep climbing anyway.
None of that fits into one neat little story.
And that’s the point.
When a market is changing character, the signals usually don’t line up all at once.
Some turn early. Some lag.
Some look important for a week and then disappear.
So heading into Q4, I’m less interested in asking whether this market is simply “bullish” or “bearish.”
I want to know which of these trends is actually starting to take control.
Does the cash keep building?
Do managers keep adding risk?
Do higher rates finally bite harder?
Or do earnings keep overpowering everything else?
Whichever one starts winning that tug-of-war is probably going to tell us a lot about what the next quarter looks like.
When this many forces are pulling in different directions, I don’t want you trading off some stale market take from three weeks ago.
That’s why every week I go LIVE to break down the market in real time…
What’s changed…
What I’m watching now…
And where I’m actually finding trades.
I held my latest session just yesterday morning.
If you missed it…
Click here now to watch the full replay.
Customer Story of the Day
“I am learning more from Ross than any other.”
Ross Givens
Editor, Stock Surge Daily
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