When There’s Too Much Money on the Wrong Side of the Market

“Life is not about waiting for the storm to pass, it’s about learning to dance in the rain.”
- Unknown

Wow! That’s gonna leave a mark.

Yesterday's price action was inevitable. Almost perfect, in fact, though I’d have preferred those 950 points had dropped off completely, with no 300-point rally on the close. That said, the long-term setup is unfolding. The spring-loading effect we have often covered is before us.  

Will this price action last through the election?

If I were a betting man, I’d say “not.”  

There’s simply too much money that’s been on the wrong side of this market for years now. And few wait around at all for much red ink these days. 

Understand that this is spectacular behaviour for those of us who focus on the long-term benefits unfolding under the surface.   

And that undercurrent is only getting stronger:

So, why would durable goods not only be expanding but getting revised upward? 

One word: Housing.

Home-buying has a long-tail effect, and the dominoes fall for months after each closing.

It’s the lowest inventory on record. 

Now, when we throw in a slow Winter building up the supply that’s needed, and another Spring buying season, you may very well find we are literally out of homes to buy when we hit Summer of 2021.

The Overall Theme – “Better Than Expected”

Housing is better than expected. So are retail sales, PMIs, and manufacturing data.

And earnings, well, they are way better than expected:

And the earnings reports keep pouring in.

This rocket-ship ride is just getting loaded up for the trip. 

Long-term investors have learned that when all the above ingredients are baked into the pie, the road ahead is marked by a clear and resounding message: 

Surprises to the upside.