Bull Trap or Bull On?

$VanEck Semiconductor ETF(SMH.US) $S&P 500(.SPX.US) 
$NVIDIA(NVDA.US)$Tesla(TSLA.US) $Apple(AAPL.US)

After initially selling off on the ADP employment report yesterday which was in honesty a prelude to today’s reports, the markets recovered and strongly rallied with SMH closing just a whisker above last Friday's local top at 280.5 but still shy of the ATH last year on July 11th of 283.07. 
The narrative was clear. What the market initially read as a deteriorating economy was then interpreted as rate cut imperative. In other words, the market believe rate cuts are around the corner because the Fed will need to step in to support the labour market. 
Now this is the conundrum. In a normal macro environment, that might be considered an iron clad certainty. But a normal macro environment this is not. Just look at the uncertainties going around. I believe the market Is underpricing this risk. Although inflation seems under control, is it really? Chatter has it that businesses intend to raise prices to counter the tariffs. And lets not forget, even if tariffs were reduced via trade deals, these tariffs were still higher than before April with a base of 10% at least for all countries. But markets seem to be forgetting that part. 

And they also seem to be placing high expectations and a high valuation on the market right now. To justify the valuations the market has now will need to really see outstanding outperformance of companies which are already stretched. So to summarise, I believe the markets are moving too fast. This is not post covid where money is being poured in to prop up the economy. This is a cautious Fed who is wary of inflation peeking up again.

Next week’s inflation report will be pivotal. The effects of the tariffs and the uncertainty have not been felt yet. But the market is partying like it is 2000 again. I still believe it’s better to be defensive and protect your assets.

Disclaimer: Please kindly do your own due diligence as this is a sharing article and in no means financial advise.

None of us are perfect so let us all be constructive, and create a positive and encouraging learning environment. Warm comments and likes are much appreciated.

Thanks for reading my commentary. Hope it helps!

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