Stocks continue to churn.
The S&P 500 has been in a consolidation phase since mid-April. Yes, we’ve had a few runs to new all-time highs, but as the below chart shows, most of the action has been sideways (see the blue box in the chart below).
Whenever markets enter a consolidation phase, the eventual breakout tends to be violent. And the longer the consolidation, the more violent the breakout.
Considered the last market consolation which took place from February through late March 2021. Stocks chopped back and forth in a significant box pattern before finally breaking out to the upside. They then ripped higher by 5% in the span of a little over a week.
Indeed, this has been the hallmark of this bull market since the March 2020 lows: stocks rip higher, then enter a six to eight week consolidation phase before breaking out to the upside again. I’ve identified the consolidation phases in blue boxes in the chart below. All of them resulted in breakouts to the upside.
With this in mind, I see no reason to overthink the current consolidation. Until the Fed begins to tighten monetary policy, it’s difficult to see a reason why stocks should collapse. It is clear the Fed has decided to let inflation run hot, and as I’ve outlined multiple times in the past, stocks initially LOVE inflation.
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Chief Market Strategist
Phoenix Capital Research