The above argument is the positive story of 2024. The rally has broadened and even better some of the most expensive stocks have come back to earth without breaking things.

It is an impressive one-two.

The question then becomes: can it continue?

There is no explicit reason why not but keep in mind that slowly but surely a new tension is developing in the markets:

One between the expectation of interest rate cuts on the one hand and a still very strong and even hot economy on the other.

We have written this a few times this year as inflation continues to stay stubbornly above target and also that the labor market continues to surprise with strength.

We had yet another important data point on this tension this week with the release of the fact that the US jobs market added another 303,000 jobs in March. That was nearly 100,000 more than expected and caused the odds of a rate cut in June to basically disappear.

You can see those odds here.

And here is that number in context. Despite being at near full employment the US economy is still finding the way to bring hundreds of thousands of people into new jobs every month.

There were negative aspects to this report, as there often are. For instance, a lot of the new jobs are second jobs or temporary ones but jobs are still jobs. No matter how you spin it the economy adding jobs is very much not the economy losing jobs.

The fact that we are rapidly getting into the meat of an election year only adds complexity - for policymakers at the Federal Reserve and investors - to an already thorny calculus.

A lack of certainty about the path of policy - and liquidity - is likely why the S&P 500 has been trading sideways over the last 3+ weeks.

Is this a brief pause or the start of something else?

Only time will tell but this newsletter begins with a quote from the Big Short, a movie (and before that, an excellent book) that looked at the housing bubble in the early 2000s and the few contrarian individuals who bucked conventional wisdom and called "bullshit" on the whole house of cards (pun intended).

That worked out very well for them and, in the hands of the silver tongued Michael Lewis, made for an incredible story. It also makes for an incredible lesson.

Today, with the stock market up 35% from its 2022 lows and stocks at or near records in terms of price and valuations it is worth asking a few tough questions about just how much higher from these levels could equity markets go?

To paraphrase the Big Short, if a correction comes will it be "just a gully" or the start of something far less pleasant:

Remember, no one will want the expansion (and rising markets) to end:

​So, will it?

It is obviously a big unknown to follow and we will do our best but at the root is the question: what will really derail the current US expansion? Expansions do not die of old age......

Typically the answer is always: The central bank.

But we actually have another candidate we feel like is staring us in the face.

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