Narratives will change, and yet the stock market will go up 🆙

Don't get married to market narratives 🛑

Photo by Sergiu Vălenaș on Unsplash

For a little while, two major narratives have dominated the stock market’s rally: The promise of the so-called “Magnificent Seven” and the prospect for Fed rate cuts in the near future.

But as we’ve been discussing at TKer, these narratives have been evolving, even as the stock market continues to scale new heights.

Two recent news stories caught my attention on the matter.

The first was “Why the Stock Market Keeps Changing Its Story“ from The Wall Street Journal. Markets columnist James Mackintosh observed that as Apple, Tesla, and Alphabet — members of the Magnificent Seven — have lagged this year, energy behemoth Exxon Mobil has been roaring higher.

Some of the Magnificent Seven have become less magnificent. (Source: WSJ)

“Behind Exxon’s surge to a new high on Friday is an important shift in the market, a new narrative that investors would be wise to pay close attention to — in case it changes again,” Mackintosh wrote.

The second story was “JPMorgan warns of a growing disconnect between continued stock gains and delayed rate cuts“ from Business Insider. According to reporter Yuheng Zhan, JPMorgan strategist Mislav Matejka warned of the divergence between Fed-rate cut expectations and the S&P 500.

Even as the outlook for rate cuts turned hawkish, stocks continue to rise. (Source: Business Insider)

"Equities are ignoring the most recent pivot of a pivot, which might be a mistake," Matejka said.

Maybe the stock market will soon turn lower and reflect something more in line with the Magnificent Seven’s laggards or what appears to be a more hawkish outlook for the Fed’s benchmark interest rate.

But that’s no sure thing.

It’s certainly possible these popular narratives will soon vanish. And that can be okay! The stock market’s long history is riddled with narratives that came and went. And every time, prices eventually made new highs.

Keep in mind that before the Magnificent Seven and the Fed, some other narrative(s) defined the market’s rally.

The mother of all market narratives: Earnings 💵