With the recent rise in inflation of 6.4% in the US, the market has not reacted in a logical way to events. If we compare it with the behavior of a year ago, it is likely that we would have seen more severe falls in the markets. However, this has not been the case and why? To answer that question we have to look at market sentiment.
We have a decrease in investors' cash of 5.2%, so there is more exposure in the market, and in general, in this rally the stocks have reacted in a totally emotional way, I refer to this because Any news that has occurred, good or bad, has been discounted by the market as an increase in price. I think this is quite detrimental in the long run, the longer we maintain the bullish sentiment for longer, the harder a possible recession and its consequences will be. There is talk of the possibility of raising rates more than 5%, some investors even predict 6%, that would not be surprising seeing the current behavior of the economy, we have had a rise in inflation, although it is not very high, it is worrying, the The speed at which rates have been raised is insane and is not healthy for the economy, so after raising rates so much and applying the necessary measures to avoid and control inflation there is a rebound, I see it as something quite bad.
This is related to the manipulation of EPS, analysts make such low forecasts that when the results are announced they always exceed expectations, and this is pure manipulation, the results can be better than expected because there are estimates too low, but they are earning 5% less than before. Without commenting clearly that for 2023 they foresee positive EPS inflating the balloon with great optimism, having already changed and failed in their previous analyses.
In summary and to conclude, I consider that the market is overreacting to all these factors and news in order not to break the economic structure; the longer it takes to face reality, the harsher the consequences will be.
