Economic Balderdash

Something just doesn't feel right.  Almost everyone that comes out on CNBC/Bloomberg are telling me stocks are expensive, as global bond yields keep going higher, as central banks stay hawkish, yet SPX is trading around 4000, which would have been unthinkable just 3 years ago, and Eurostoxx is almost at an all time high.  You have the crowd last December being certain that recession is coming soon  to now almost certain that there is no recession in 2023 and that a soft landing is very possible. 

 

The global stock markets have been amazingly resilient in the face of the fastest tightening cycle in recent history.  The stock market is fighting the Fed, and holding up well.  So is the credit market.  The Fed keeps raising, yet credit spreads are much tighter than they were last fall.  

The easiest explanation for the high asset prices is the massive amounts of fiscal and monetary policy in 2020 and 2021.  It is the gift that keeps on giving.  It also explains the resilience of the global economy in the midst of a huge increase in interest rates all across the curve.  Everyone talks about the excess savings as a reason for the strength of the consumer.  But don't forget about the super low rates from early 2020 to early 2022.  They have made a lasting impact.  Households were able to buy or refi into very low rate mortgages.  Corporations were able to issue tons of debt at low rates.  Most corporations and households are holding low interest loans/bonds that will slowly roll over into much higher interest rate loans/bonds.  It is a gradual process.  Wall St. doesn't have any patience, so when they don't see an immediate recession, they jump to conclusions like soft landing/no landing.

Here is the Federal Reserve balance sheet: 

Despite all the QT fear peddling from the permabears, the Fed's balance sheet is still sky high.  Their QT program is painfully inadequate.  They have only reduced the balance sheet by $600B in the past 10 months, after adding $4800B from February 2020 to April 2022.  That is $4.2 trillion extra Treasuries and MBS that are on the Fed balance sheet and not in private hands, $4.2 trillion of ammo for private investors to buy financial assets with.  That is the elephant in the room the Fed doesn't talk about.  It is what is keeping a bid under stocks.  It is why the yield curve is so inverted.  There is just too much damn liquidity out there.  That is why it will take time to erode that bid for stocks as the economy gradually weakens. 

So if there is so much liquidity out there, why am I negative on the economy?  Its because of secular stagnation (demographics, lack of productivity, etc).  Without big time fiscal stimulus and very low interest rates, many businesses aren't viable in a zero population growth world.  In 2023 and 2024, you will see many businesses go out of business.  The last time you had 5% Fed funds rates was in 2007, and the global economy couldn't handle it.  There wasn't enough organic growth to sustain that level of rates.  People talk about the bursting of the housing bubble and the ensuing financial crisis in 2008 as the causes, but they don't talk much about the slowing organic growth of the developed world since the early 2000s, aging demographics, and slowing population growth rates.  That trend has only gathered momentum in the past 5 years, masked by big budget deficits and massive fiscal and monetary stimulus.  If the US government ran a balanced budget now, like it did in 2000, the US would be in the depths of a deep, deep recession.  The only growth you are seeing in the US is from government pork and entitlement spending.  If they just stay at current levels for the next few years, you will have zero growth.  

The inflationistas out there, which have grown in number quite a bit over the past year, are forgetting that the main cause of the huge rise in 2022 inflation was the 2020 and 2021 Covid bazooka stimulus that was the largest stimulus EVER in US history.  That was a one time bonanza for the financial markets and the economy, and it resulted in an inflationary surge with a 12 to 24 month lag.  The main cause of the inflation, a 40% rocket higher in M2 money supply from mid 2020 to end of 2021, is gone.  The M2 money supply is going in reverse, almost unheard of in US financial market history.  The monetary contraction starting from late 2021 and still ongoing will be the reason that inflation cools down in 2023 and 2024.  

All things being equal, inflation going lower in a high inflation environment is bullish for the financial markets, but this time, the cooling inflation will be accompanied by a big drop in economic growth with high interest rates.  Unlike the higher for longer crowd out there, I don't think the economy will hold up for long under this current high rate regime.  Do you really think the stock market will be happy with Powell sitting there, keeping short term interest rates above 5% for several months, while the economy deteriorates, like nothing is happening?  

If the Fed truly commits to its higher for longer rate regime, then they will have to do it in the face of a falling stock market, disinflation, rising credit spreads, and increasing unemployment.  Powell is not dogmatic.  He's from the Church of What's Happening Now.  He's not going to ignore incoming weak economic data just so that he can fulfill his forward guidance promise of higher for longer.  Just like he didn't fulfill his promise of rates at zero till 2024 in his forward guidance in 2021.  There is a high probability that the data will cause Powell to pivot later this year.  By that point, the stock market will probably be much lower than current levels, and it will have to be, in order to get Powell's attention.  If the stock market just meanders around 4000, give or take 200 SPX points, he's probably going to stay with high rates. 

Corporations will be sharply cutting back on investment, as the hurdle for productive use of debt in a 5% risk free rate world is much, much higher than it was when it was hugging zero.  If you can't make money borrowing money at 7,8,9%, why would you borrow at those rates?  If corporations cut back on debt issuance, that just means less investment, less stock buybacks, and less economic activity.  Businesses can't keep raising prices in perpetuity when the money supply isn't increasing.  The customers just won't have the money to buy the goods and services.  There has to be more money in circulation to keep inflation going.  

While I respect the price action in the bond market, as the sovereign bond market is trading extremely weak, I don't expect that to be a long term trend.  Short term, you have worries about econ. data continuing to come in hot, as the lag effect of higher rates has yet to really work its way through the economy.  The chart looks horrible for bonds.  It is also a seasonally weak period for bonds, as they tend to sell off in March and April.  

 

 

Longer term, bonds are a much better investment than stocks here.  I just don't believe high interest rates are sustainable for the developed world.  Its just a matter of when, not if the dam breaks and the economy buckles under the pressure.  The only way high interest rates can be sustained is if inflation sustains at a high level.  I don't think that's happening over the next 2 years.  Maybe starting from 2025 after you get either a Democratic president + both Houses with Democratic majority or a Republican president, then you create conditions for another fiscal bonanza as the populists take over and spew money everywhere.  But until then, fiscal policy just won't be loose enough to create the conditions for high inflation. 

Maintaining my equity shorts and just watching the SPX/NDX for now.  The stock selloff likely continues if the bond market stays weak.  CTAs, after getting long in January and February, started dumping SPX last week, so they are probably either flat or slightly short now.  Volatility is still relatively low so vol control funds are not selling here.  Don't have a lot of conviction on the indices, so just watching and waiting for a better spot.

Don't Call it a Comeback

"Don't call it a comeback.  I been here for years."

The retail trader is back.  Retail is aggressively buying stocks and crypto in 2023.  I am a bit skeptical about how they obtain data on retail investor flows, but everything I see points to them being generally correct.  The outperformance of daytrader favorites such as TSLA, bitcoin, meme stocks, etc. so far in 2023 are trademarks of retail investor inflows. 

Daily Net Inflows by Retail

 

Bitcoin vs SPY 6 mo. chart

Obviously retail investors are hooked on stocks.  2020 was the turning point for the stock market.  That is the year when the stock market went from being a casino occupied mostly by institutions to being a casino now being filled with both institutions and retail investors.  Individuals have found a new outlet for their gambling addiction:  the stock market.  Retail investors are the drivers of stocks like TSLA, even with its $600B+ market cap.  They are the ones that move around bitcoin.  This creates long term opportunities.  Retail are the least informed investors and the best fades over the long term.  

Fundamentals eventually determine the stock price.  Dislocations in retail dominant names can only last as long as the retail investors keeping pumping money into the same stocks.  Once they buy in, then the next step is not if, but when they sell.  As we saw with tech stocks and retail favorites like TSLA in December 2022, when retail investors start losing lots of money, they panic just as much, if not more than institutions on the way out.  

Retail investors have been buying into the soft landing/no landing thesis perpetuated by the institutions. Institutions have been coming back in and steadily increased net equity exposure this year, while retail has been piling back in and trying to relive their glory days in 2020 and 2021.  

In a bear market, the investor positioning among institutions rarely gets much above average, as the fundamentals are just not strong enough to change enough minds to have the majority all bulled up.  We are near a point where positioning will only get much more bullish if you see signs of earnings forecasts rebounding and inflation going down sharply to justify a pause and eventual rates cuts from the Fed.  That's a high hurdle, considering all the forward looking economic indicators and the lagged effect of higher interest rates working to slow down credit growth and thus economic growth.  

The options market is also showing signs of complacency, as the put/call ratios have been trending lower in 2023.  The 20 day moving average of the CBOE equity put/call ratio is back towards mid August 2022 levels.  That just happened to be when the SPX topped above 4300 and went down 800 points over the next 2 months.

 

If this is still a bear market, which I still believe, then you have limited upside from current levels, maybe a few percent at most in the SPX, and lots of downside.  A skewed risk/reward ratio in favor of shorts.  I was hesitant to go too heavy on the short side when I saw the lack of selling after bad inflation numbers and hot retail sales.  I missed the juicy short above SPX 4140.  Just too cautious and overthinking things as I was already short some high beta retail high flyers.  Given how much CTAs and systematics have added to the stock buying over the past few weeks, there is not much more ammo left on the bull side.  

The weakness in the bond market is the biggest barrier for a sustained stock market rally.  The bond market could of course reverse and start rallying, but looking at the charts and the distance from prior lows, its not looking great for bonds either.  The 10 year yield is at levels where the SPX was trading in the 3800s in late December.  Either the bond market is too low or the stock market is too high, or a combination of the two.  The divergence is getting extreme between stocks and bonds, and I wouldn't be surprised to see pension funds do a hefty rebalance out of stocks and into bonds going into the last few days of the month. 

Big picture, it looks like a topping process is ongoing in the SPX/NDX and the bottom could fall out at anytime.  There is serious rug pull risk here. 

Irrational Rally

This rally is even more confounding than the one you saw in July/August 2022 because at least back then, the bond market was rallying with the stock market.  This time, stocks are going up despite the bond market weakness and the additional Fed hikes priced into the yield curve.  Yes, its the soft landing hopes that are driving this rally. 

The market went from hard landing to soft landing in a hurry.  That strong nonfarm payrolls number really got investors believing in either a soft landing or a no landing!  Incredible how all the other economic indicators are immediately forgotten and investors latch on to the blowout jobs number.  That's classic Wall St. behavior.  What have you done for me lately thinking.  

One thing I've learned about shorting the SPX/NDX since the QE era began in 2008:  The rallies can go on much longer than you think possible.  Especially when investors are not totally bought in on the long side.  Sure, we've gone a long way since last October in adding bulls, in getting CTAs/vol control/systematic funds to add equity exposure.  But hedge funds still are below their average net equity exposure.  Here is a recent look at hedge fund positioning from Deutsche Bank:  

On CNBC/Bloomberg, I am still hearing some reluctance from institutional investors to embrace this rally, even as they say that the economy is unlikely to go into recession, as previously feared.  This is just another survey, which I put less weight in than positioning, but I was surprised to see these numbers after the equities rally so far this year:

It does make me want to wait for a more ideal spot to put on shorts, as the SPX could definitely grind higher until you see more overt signs of an economic slowdown, which probably will take a few more months.  During that time, who knows how far the chase for performance and trying to keep up with the indexes will do.  Its totally irrational, as extending the high rate regime by having non recessionary data for the next few months will just make the landing that much harder.  But so much of Wall St. is caught up in playing the short term game and not able to deal with underperformance or worse, big drawdowns.  So they have to often chase even though they know the fundamentals don't support the rally.  

Since they've reduced their shorts via massive short covering in the past few weeks, I don't expect much more juice left in the popular short names in the speculative tech.  That's where I've put on short positions.  I've stayed away from shorting the index until I see more of a blowoff top or signs that hedge funds are back to at least neutral positioning.  I like the risk/reward long term from shorting the SPX here, but with some single stock shorts, don't want to go all in by shorting indexes as well, until I see more signs of a top.  

Stocks shrugged off the higher than expected CPI number, while Treasuries went lower.  The price action does speak to the effect of puts losing value and being delta hedged by dealers, which is to buy back shorts.  Also this is opex week, so you get a lot of influence from options.  It feels a bit too neutral for my liking, so will wait and see.  

Retail Frenzy and Hedgie Caution

That nonfarm payrolls report is still having repercussions in the market.  The market has jumped from the immaculate disinflation to sticky inflation.  I am hearing talk about a strong job market, higher prices for used cars, strong new car sales, more optimism in real estate, etc.  I heard none of these things 2 weeks ago.  Its amazing how fast Wall St. jumps from one side of the fence to the other.  Now its clear that investors have come right back to the 2022 mindset of high inflation/good econ. data is bad news.  

However, that trend doesn't seem to have staying power.  Wall St. has no patience for things to play out.  If the economy doesn't immediately crater after rate hikes, then the economy is deemed to be impervious to rate hikes and very strong.  As the saying goes, monetary policy works with long and variable lags.  Most say the lags are anywhere from 12 to 18 months.  If that's the case, the bulk of the rate hikes happened after June, so that would be anywhere from June till next March for the full effect of the rate hikes to work their way into the  economy.  That monetary policy transmission takes time, its slow but the effects accumulate, like body punches in a boxing match.  One body blow usually won't knock anyone out, but they accumulate to weaken the opponent over the course of a match. 

The retail traders have regained confidence as the soft landing/no landing view gains popularity.  I am seeing some crazy action in pump and dumps the past couple of weeks.  Its almost as crazy as 2021, when you regularly saw multiple 100% daily gainers in a day.  But that confidence is missing from the hedgies, as they've been covering shorts and also reducing longs, pulling back on their gross exposure and not raising their nets, even with the growing economic optimism out there. 

Its a confusing time for macro based investors.  The leading indicators are telling you one thing, but there are bits of coincident data that remain strong, like employment, which gives out soft landing/no landing vibes to the public.  This seems to happen at the beginning of every downturn.  During this "Goldilocks" period, people play down the importance of the yield curve inversion, the accuracy of the leading indicators, and point to the strong jobs market as proof that the economy remains strong.  

The thinking out there is that there is still a lot of excess savings, and will keep the consumer spending for some time.  But average hourly earnings has been growing less than the CPI for the past 18 months, and we all know that the CPI underestimates inflation.  So consumers' buying power is probably the worse it has been for several years, as wage growth hasn't kept up with inflation.  

Logically, with government spending taking up a bigger percentage of GDP than in the past, the economy becomes less efficient.   Government waste and lost productivity manifests itself as inflation.  Government workers get paid more than their labor is worth, so the money that they get paid isn't made up for by increasing the productivity of the country, leading to more inflation, and less buying power for the private sector. Government spending to GDP ratio hit 37% in 2022, after reaching over 43% in 2020.  In the late 1990s/early 2000s, government spending to GDP was in the low 30s.  Government creep into the economy lowers productivity as their activity crowds out the more efficient private sector.  This is one of the trends that is a tailwind for higher inflation in the future.  While it doesn't have a big effect near term, over time, waste and inefficiency in the public sector gradually decreases the purchasing power of the dollar.  

While I am a believer in the secular inflation thesis, its going to be overwhelmed by cyclical forces.  In this part of the business cycle, you have disinflationary forces which are quite powerful, with high inventories, higher cost of capital forcing some businesses to close, negative wealth effect from housing and financial asset depreciation, and banks tightening credit standards and giving out fewer loans.  The recession callers at the end of last year weren't wrong.  But they jumped the gun by thinking that the Fed tightening would choke off the economy right away.  It may take a few more months than they thought.  

Noticing some interesting price action the past few days.  Even with the strong nonfarm payrolls report and a weak bond market, the bulls were aggressive, and pushing stocks up until yesterday.  Especially super speculative stocks that retail traders love to push around.  Greed is percolating out there.  You are seeing more optimism show up in the investor sentiment surveys, which are showing the highest levels of bullishness since early 2022.  It makes for a dangerous market to get long, with all these newfound bulls.  It makes it safer to short, but I would like to see less fear in the bond market in order to really get the bulls worked up and feeling invincible.  

Right now, there still seems to be a bit of apprehension among hedge fund managers, which still have relative low net exposure to equities.  Retail is almost all in, so that's a good sign to short the retail favorites.  But for the indices, its less clear cut.  I would like to see the hedgies increase their net exposure a bit more here.  The systematics and CTAs have been buying the past few weeks, so they are have used up most of their buying power.  Have been shorting retail driven stocks this week, but I will wait to short the SPX.  I missed a good down move yesterday but I think there will be at least one visit above 4200 before this bear market rally is done.  Gut feel tells me that this bear market rally will last longer than the one you saw from June to August of 2022.  So its going to be trickier to maintain a long term short this year.  Still think we see a big move lower eventually, but probably only after you suck in a few more bulls into the ring. 

Blowout Jobs

The higher for longer crowd got a boost when they saw the big nonfarm payrolls job number on Friday.  Instantly, you saw them sell everything, stocks and bonds, and with a delayed reaction, even commodities.  The nonfarm payrolls print just shows you how wild these BLS numbers are, how much they depend on the massaging of numbers, seasonal adjustments, population normalizing measures, etc.  The ADP number was much weaker, and the Challenger job cuts was higher, so this nonfarm payrolls number is totally out of whack from the other employment data, which shows some signs of weakening.  

The only real effect that the nonfarm payrolls report has on financial markets is how it affects monetary policy and I doubt this number will move the needle.  The Fed's number one goal is to reduce inflation, not to reduce jobs.  If reducing jobs is required to reduce inflation, then they're willing to force that situation, but if its not, they won't keep hiking if jobs are steady and if inflation continues lower at the current pace.  Powell is much more worried about wage inflation than the total number of jobs.  If wage inflation stays under control (trend is toward more lower paying service jobs and fewer higher paying tech/middle management jobs), as it has for the past few months, he's not going to kill the economy just because of strong NFP numbers.  The Fed's focus is still on inflation.  And based on base effects (energy was up huge from February to June 2022) and current high frequency data on rents, the year on year CPI numbers will be dropping dramatically unless oil prices surge back over $100 in the coming months.  This isn't a forecast for how inflation will be, its just simple math based on how CPI is calculated.  

It seems like I'm in the minority when it comes to betting on a big drop in inflation/even some deflation for 2023, here's a Twitter poll taken just recently:

In fact, I was quite surprised that so many bet on higher for longer, when the leading indicators are pointing to further decrease in inflation, as well as significant economic weakness.  Maybe this time is different, and the Covid stimulus is the inflationary gift that keeps on giving, but I have a hard time seeing high inflation and higher for longer when you have the housing market essentially frozen, with current listed home prices not reflective of where the actual market is, as sellers always are reluctant to lower prices at the beginning of a housing downturn.  Unlike the stock market, the lack of liquidity in real estate means bid and ask spreads widen at tops, as sellers are the only ones who list their prices.  There is only an ask price in house listings, there are no bid prices listed.  In the goods sector, inventories have built up bigly over the past 12 months, while demand is falling, a deflationary force that will play out in 2023 and feed into the CPI. 

In the heat of battle, its easy to go back to the last playbook and expect it to repeat.  The 2022 playbook was to sell bonds and stocks on strong economic data, and buy bonds and buy stocks on weak economic data.  I believe that playbook is on its last legs as the focus shifts from inflation to economic growth in the coming months.  When the focus turns towards growth, weak economic data will be considered a negative, as that just signals lower earnings in the future. 

The expectation here is that economic weakness for the next month or two will be taken as a positive, as investors still latch on to the last remaining bullish talking point: employment.  But when the economic weakness persists and the nonfarm payrolls numbers start to turn down, the talk among investors will shift from 1) the Fed needs to keep tightening, 2) the labor market is too tight, 3) inflation will be sticky, to: 1) the Fed is out of touch with the economy,  2) the economy is looking horrible, 3) when will the Fed come to the rescue?  It will happen sooner than people think, it always does. 

These outlier economic data prints (especially nonfarm payrolls) get investors so heated up and leaning towards one side, that it provides opportunity to take the other side, especially when the longer term trend is in the other direction.  The blowout jobs number is providing a good entry to get long bonds.  I was previously looking to enter SPX/NDX shorts, but I think I'll be able to get a better short entry point when the effects of this nonfarm payroll number wear off and everyone goes back to focusing on disinflation and a Fed that is almost done with the rate hiking cycle.  

These bear market rallies are seducive, and they suck in the technical traders who worship at the altar of price, and fund managers that have to keep up with the indexes, only to chew them out when the fundamentals come back to weigh on the market.  

After a huge rally in the SPX over the last month, the bar has gotten raised much higher for the economy.  Now you will need not only a continued disinflation to keep the Fed from overtightening, you will also need earnings to not go down much in order to justify all the recent optimism about a possible soft landing. 

A combination of long bonds and short stocks looks to be the ideal mix at these levels.  Based on how financial markets react, usually what happen is that bonds rally as it sniffs out economic weakness and future Fed loosening, and stocks react positively to that bond rally by rallying at the same time, but after a brief period of stocks and bonds going up together, the economic weakness becomes more pervasive and investors start worrying about recessionary impact on earnings, leading to weak stocks, and bonds going up even more as the feedback loop of weak stocks ---> weaker credit markets ----> weaker economy leads to a flight to safety.  

It appears we're still in the honeymoon phase with occasional flashbacks to the nightmare 2022 scenario of weak bonds/weak stocks (last Friday).  This honeymoon phase could last until the Fed finally says it is ready to pause its rate hikes, keeping the SPX above 4000, and then leading to one last relief rally, only to be met with the reality of an economy headed for a hard landing.  At that point, I expect a steady downtrend that lasts for months, and will be when you see retail start to throw in the towel on stocks that they bought up in January and February. 

Stupid Season

It must be that 6 month cycle working again.  Not many will remember this, but going into the earnings season in late July, ahead of the FOMC, the big worry was about bad earnings and a coming recession.  Fast forward 6 months.  The big worry was about weak earnings going into the new year, and a coming recession.  The market has climbed that wall of worry about downward earnings revisions, as all I heard in January was that earnings estimates for 2023 are too high from everyone that comes on CNBC or Bloomberg.  They were expecting earnings to disappoint and for stocks to go down.  Earnings disappointed, but stocks went up.  That is positioning at work.  People sell ahead of anticipated bad news, and buy ahead of anticipated good news.  No one is waiting for bad news to sell, when they know its coming.  That's the story for this earnings season.

Investors have not experienced this kind of chop market for a very long time.  You had smooth uptrends for most of the past 14 years, with every deep correction being over within a few months.  That is 14 years of investor conditioning to believe that the stock market always bounces back and eventually makes new all time highs.  Thus you get these fervent rallies when people think the market has bottomed, because it usually goes up for months on end.  

Its more than a year since the start of the bear market, and that belief in the stock market is still there.  I don't see the big outflows.   We've had 2 straight weeks of strong inflows into equity funds.  There is STILL a ton of speculation in shitcos, shitcoins, and meme stocks.  There are so many out there:  AMC, GME, CVNA, COIN, BYND, etc.  There is even an ETF that wraps up all of it in a nice little turd package known as ARKK.  All you need to do is look at the ARKK chart and you can tell that rampant speculation is picking back up.

The catalyst for all this movement?  Apparently it was because Powell didn't push back on the recent stock market rally and loosening of financial conditions by saying that financial conditions are tighter, and attempting to go for that soft landing.  Going for a soft landing = less likely to overtighten.  Powell is no longer looking for the market to feel pain to get inflation lower.  He thinks that inflation will go lower without much pain. It seems he has bought into the immaculate disinflation story that is getting quite popular these days.  That's why your seeing a strong rally in both stocks and bonds so far in 2023.  One rally looks sustainable.  The other looks to be running on hot air.  

Its hard to tell the difference between a mild economic slowdown and a deep recession at this point in the cycle.  We are just entering the fat cutting stage of the business cycle, as worker hours are reduced, layoffs announcements start up in a few bloated overstaffed sectors of the previous upturn.  Now is when investors and economists both get optimistic, as they see inflation coming down, growth slowing, but without the rise in unemployment.  This optimism is fueled by both the stock and bond markets going up, as it confirms their beliefs.  Fundamentally, the situation is worse than 6 months ago.  

July 28, 2022 (day after FOMC):  SPX 4072, 10 year 2.68%, Fed funds rate 2.33%

February 2, 2022 (day after FOMC): SPX 4179, 10 year 3.40%,  Fed funds rate 4.58%

The SPX is 100 points higher, the 10 year is 70 bps higher, and Fed funds is 225 bps higher.  The environment for the conservative investor is much more favorable, as he is getting 225 bps more on cash and 70 bps more on 10 year Treasuries than 6 months ago.  

The 2 main bear thesis are either:

1) Inflation will remain sticky, the Fed will keep their word, and not cut in 2023, and stay higher for longer, pulling down both stocks and bonds.  

2) Inflation goes down but the economy goes into a deep recession that hurts corporate profits and pulls down stocks but pushes up bonds.  

I am in camp number 2.  The disinflation is happening, but its not going to be immaculate.  This disinflation is happening mainly because demand is going down.  When the biggest asset in most people's portfolio, their house, is frozen, as transactions disappear in the face of higher mortgage rates and lack of demand at current prices, you will see sellers lower their offers.  That reverse wealth effect, combined with a bear market in stocks, is a toxic combination.  Don't forget that organic growth is meager now in the developed world, mainly due to low population growth and having squeezed all the economic growth possible from financial repression and low rates over the past 14 years. 

What you are seeing now is stupid season, when investors get enamored with the bullish side of the story, forgetting about the negatives.  These are the moments where you can take long term short positions.  Its what I've been waiting for while playing small.  Its getting very close to the time to go big on the short side.  I am not smart enough to pick the top, so I'll scale into the shorts, focusing more on heavily shorted and more speculative names at first, and then adding index shorts.  It is time to short the speculative, heavily shorted garbage, but I would wait a few days to short the SPX.  The strength in the bond market and the lower volatility means that you will see more inflows into risk assets as vol control and systematic funds add equity exposure.  It should mostly be played out by the end of next week.  

AAPL threw some cold water on this rally.  Rallies don't end on bad earnings reports.  The speculators are looking for blood.  Bear blood.  As I mentioned a few days ago, a strong rally after FOMC with Powell not going full hawk would make the bulls feel invincible.  That's where we are.  Its time to go to action on the short side, with any rally from here over the next couple of weeks likely to just be temporary, and all of it and more will be given back in the coming months.