Stocks want to go up. When there hasn't been fresh bad news in a while, they will float upwards.
On a technical analysis level, "gaps" want to be filled. Two Fridays back we gapped down at open, today's gap up filled that.
Short covering is a real thing. When the market starts to drift up, some short holders will cover their bets. This magnifies a small bounce into a large one. (Notably this works on the other side too. When sentiment sours, opening shorts artificially pushes markets down.)
This looks like the other 25 dead cat bounces we've had this year. The problem is that when the real recovery starts, it will look exactly like this as well. The stock market will resume its upward trajectory long before inflation is confirmed to have abated and the Fed formally pivots. We will have N anticipation-rallies and N - 1 of them will be crushed by fresh worries or Fed hawkishness. Is this the Nth or the (N - x)th? The law of probabilities tell me that it's most likely not the Nth and final, but missing out on the Nth would be costly indeed, so I stay invested.
All that said, what could be the good news that's right around the corner?
- there's been some real progress in Ukraine. If we don't get a nuclear war, the conflict may be over sooner than we thought
- Lael Brainard said something about trying to not crush the economy, somewhat less hawkish than Jpow's old testament fire and brimstone speech from Jackson Hole.
- The UN also pleaded with central banks not to let DXY run rampant.
- Ratio of job seekers to job openings has started to climb (less pressure on wages)
- Some indications from the manufacturing sector that inflation (and production) is falling ("growth recession"/"soft landing" could be possible)
- There are early signs that financial markets are cracking (Credit Suisse, English gilts) which may mean the rate hikes we've already endured are going to tighten conditions more than anticipated, and further hikes won't be as necessary
Still I'm not looking forward to Oct 13.