How might one improve upon perfection? It’s an eternal query for the metaphysical mind and a timely one for the here-and-now investor, after the stock market has feasted for months on a near-ideal set of conditions. An adorable Goldilocks economic expansion, enough global disinflation to constrain bond yields in a benign range, lavishly generous credit markets and a clear upturn in earnings growth might be enough to explain the S & P 500 hitting further record highs last week and logging a 25% gain since late October. But on top of that rich bounty, the Federal Reserve seems prepared to start trimming the policy rate by summertime, exercising a well-earned prerogative to “normalize” rates in economic peacetime with stocks at a record rather than fight a battle against a macro downturn with markets under stress. Add in the fast-flowing enthusiasm for AI-enabling semiconductor stocks and the weight-loss miracle drugs, and we have a market that’s been riding waves of belief that good things are afoot, dealing out increasing rewards and defanging a succession of risks along the way. With all that, though, Friday’s market action furnished a tentative hint that the rally might have reached one of those “enough for now” moments, when prices and attitudes catch up to, and possibly surpass, the pileup of positives. After an early pop following a just-right jobs report showing moderate employment growth, rising labor supply and decelerating wage gains, the S & P 500 was jolted by some of the market’s fastest horses breaking stride. Nvidia unwind The headlong aggression of momentum-stock buyers in recent weeks has been one of the few decent reasons to expect this sturdy, tightly ordered rally to start trading a bit more loosely and unreliably for a time. While only one day’s action, the severe Friday reversal in Nvidia shares (from up 5% to down 5% within six hours on eye-watering trading volume) was a fitting preview of what a potential momentum unwind would look like….
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