Short-Term View: A Possible Relief Rebound
The sharp sell-off in November, followed by the Fed’s emergency action, suggests that markets were oversold in the near term. Positioning had shifted towards fear, so a short burst of buying is possible. If liquidity expectations improve and investors believe the Fed will end QT smoothly in December, a short-lived “mindless” rally can occur, driven by mechanical flows rather than conviction.
Medium-Term View: Decline Likely Not Fully Over
Despite the rebound potential, several indicators show the broader correction may not have run its full course.
• Valuations remain elevated, especially across megacap tech.
• Earnings downgrades are creeping in, yet prices have not adjusted proportionately.
• Volatility is rising, a sign that markets are struggling to find equilibrium.
• Liquidity remains fragile, even if QT ends next month.
These factors usually point to a market that still needs to cool before a sustained uptrend resumes.
Key Risk Drivers This Week
• Rate expectations remain unstable. Any shift in inflation data can trigger sharp swings.
• Bond market stress remains the biggest systemic risk.
• Institutional flows have been cautious despite pockets of dip buying.
My Stance
Short-term: Mildly bullish due to positioning, liquidity hopes, and technical oversold conditions.
Medium-term: Cautious to mildly bearish because valuations, earnings risks, and tightening financial conditions remain unresolved.
A sustainable bull leg likely requires a clearer disinflation trend, stabilised yields, and stronger earnings momentum. Until then, the market is prone to choppy rallies rather than a clean trend reversal.
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