If you’re wondering how markets can blow off such horrible news lately that continually gets even worse, well, this is just how it goes. Today, markets are remarkably orderly and well behaved considering the fact that the economy is edging toward a precipice of unknown depth.

But, reversing years of investing momentum and vol smashing Pavlovian behavior/structural flows isn’t a two-point turn. It takes time, the market will have to see the whites of the eyes of the killer before it bleeds profusely.

I wrote about this a while back, demonstrating that the GFC and COVID enjoyed periods of blatant disbelief and cognitive dissonance. A recent example, would be retail surveys saying that we are in a bubble, yet adding record amounts of fresh capital to momentum stocks.

So, it certainly appears we are going down this road again, until it finally cracks:

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I’ve said this before but allow me to repeat myself. Equity markets (and bond markets for that matter) are not forward-looking. They are more like teenage parties; they don’t end until the cops show up or get kicked in the nuts. People have short memories, if they didn’t, they’d be haunted by past memories in perpetuity. Consider how the market behaved after Bear Stearns imploded:

You know what happened next after this event. The markets had plenty of advance warning, yet they blew it off for a while. Hard to believe right? I mean, that was a giant canary.

Ok, not convinced? An idiosyncratic example? How about COVID? How long did drunken markets take to acknowledge that? Well:

When you look at that chart, you almost have to laugh, markets were beaten over the head with horrible and continually worsening news until it finally dawned on them that there might actually be a problem brewing.

The markets bouncing 100 points off the low on worsening news is not entirely surprising, even if DJT is going to add 25% to the 25%. It’s become political comedy at this point, that will turn a running joke into a problem grand enough to affect everyone and you can believe that markets will eventually acknowledge that truth.