Dip buyers scoring historic win in stocks that defy bond warning
BNN Bloomberg
The twin issues that have recently rocked stocks -- the omicron coronavirus variant and a hawkish Federal Reserve -- did nothing this week to deter dip buyers, who powered American equities to their best rally in 10 months.
The twin issues that have recently rocked stocks -- the omicron coronavirus variant and a hawkish Federal Reserve -- did nothing this week to deter dip buyers, who powered American equities to their best rally in 10 months.
As the latest COVID-19 strain sparked fresh restrictions around the world and surging consumer prices kept the Fed on track to tighten, bargain hunters poured back in, powering the S&P 500 to an all-time high with gains in four of the five days. Hedge funds, who cut equity exposure at a ferocious pace during the November rout, re-emerged as buyers. Equity funds lured money for an 11th straight week. And bullishness crept higher in the options market.
It’s another lesson for bears that’s been driven home repeatedly in 2021: betting against stocks has become futile. Dip buyers have been rewarded virtually every time the market has pulled back, so much so that by one measure the strategy is having one of its best years on record.
“All of our fears seem to have been overblown about 2021, and that’s proved to be a successful environment for dip buyers,” said Art Hogan, chief markets strategist at National Securities. “Nothing succeeds like success, and when that pattern starts to repeat itself, it gets noticed and more people join the game.”
The latest episode has bulls basically ignoring an ominous sign from the bond market, where short-term rates are rising, while long-term ones fall. This flattening of the yield curve is viewed by many as a message that the Fed is poised to snuff out the economic growth that’s been rocket fuel for corporate earnings.
Stock buyers argue that a booming economy can withstand the anticipated two 25 basis-point rate hikes next year after the Fed signaled it would move faster to wind down its bond-buying program. And even though data Friday showed consumer prices rose the most in four decades last month, views on the pace of tightening did not get more dire.
