Last week we stepped through the simple math that all but guaranteed a very eye-appealing 3%(ish) June inflation number.
And I said we shouldn't underestimate the appetite of the media and the White House to celebrate this headline number, and for it to positively influence confidence (which has been running near crisis low levels).
We've seen it. Not only has the media and the White House celebrated, but Wall Street seems to be claiming victory on inflation.
They are now pricing out a September rate hike.
With that, remember it was just two months ago that global fund managers were most bearish stocks since 2009, and leveraged futures traders were short stocks at a twenty-year extreme.
This was just as stocks were breaking above this 4,200 level.
And that market positioning, as we discussed in my note back in May, actually creates vulnerability to a sharp move higher. Why?
With some good news, the shorts (and those that are underweight equities) will be scurrying to reposition (long), which can exacerbate the move.
When the investment community is caught on the wrong side, where do they look to catch up? The laggards.
With that, the easy targets, in this case, are small cap value stocks and commodities.
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