The tailwinds seem to still be with equities given the dovish comments of the Fed. It s not clear what it will take for them to tighten policy. The magic unemployment number for Fed action has moved down by 1% from the what was thought to be the target of 6.5 percent. The rule is that investors should never fight the Fed.
Using the wind analogy, we also have headwinds in the equity markets. The performance and valuation suggest that we are living close to market extremes. By itself, extremes may not suggest much. Rules and highs can be broken, but high valuation makes it more likely that any negative news will have a stronger market impact. My concern is the downside surprise. Expectations can change more quickly at the extremes.
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