We’ve seen some nasty economic data over the past month. Aside from a still hot labor market, there weren’t many bright spots.
Inflation rose 9.1% in June, the highest reading since 1981
The national average for gasoline topped $5 a gallon for the first time
33% of listed homes have cut their prices
Home builder confidence fell to the lowest levels since May 2020
30-year mortgage rates hit 5.8%, the highest since 2008
Industrial production fell 0.2% in June
Construction on housing starts fell to a 9-month low
Small business optimism fell to the lowest levels in the last decade
ISM manufacturing PMI fell to the slowest growth since June 2020
Record numbers in credit card usage
Just seeing this, one would think that stocks took it on the chin since all this data came out. Wrong. 374 S&P 500 stocks are up over the last month.
It appears that all of the bad news was already in the stock market after experiencing the worst first half since 1970.
“What’s priced in?” is the trillion-dollar question.
You see people casually throw this term around, “it’s priced in” all the time. “The stock is down 70%, all the bad news is priced in.” And then the stock falls 25% after reporting earnings. We saw that time and again last quarter.
You only know what’s priced in after the fact. You can make reasonable guesses, but that’s all they are.
Netflix got bombed last quarter after it revealed that it lost subscribers for the first time in a decade. They just told the world that they lost subscribers again in the second quarter. The stock is up 8% after hours. So less bad than expected was good enough this time, and there wasn’t any way of knowing that prior to 45 minutes ago. You know what’s priced in when everyone else does and not a second before.
So the news has continually gotten worse over the past month but stocks are going up instead of down. The question now is, was this just a momentary reprieve? Is the market looking past peak inflation? Was all the bad news already priced in? Maybe, maybe, and maybe. We’ll find out soon.
Josh and I will cover this and much more on tonight’s What Are Your Thoughts?
Michael Batnick is a managing partner at Ritholtz Wealth Management. He is the co-host of Animal Spirits, What Are Your Thoughts, and The Compound and Friends. For disclosure information please see here.