As we go into the second half of the year, there are two questions that are dominating market discussions: 1) Why doesn't anyone want to sell? and 2) Is it time to rotate market leadership?
Let's tackle the first question:
1. Why doesn't anyone want to sell? The markets sure look a little odd. When was the last time you saw almost every asset class up over a six-month period:
Key metrics this year
Kind of odd, no? This should happen all the time. Everyone's a winner! Everyone gets a balloon!
That's the way market participants seem to want it. Everyone wants to have their cake and eat it too. And that contradictory data is a problem that needs to be resolved.
The so-called Goldilocks investment scenario seems to even extend to inflation. ECB Chief Mario Draghi recently said that reflation was coming back, but in the same speech he also said inflation was more muted than expected. No wonder the market was confused.
I think this contradictory data is the main reason everything is up. No one is quite sure what is happening, so everyone has stayed with their convictions: gold being up means more uncertainty, higher bond prices mean the economy is weaker than expected, stocks rising means the global economy improving.
Everyone is entrenched in their camps.
Here's another seeming contradiction: economic data is disappointing at the same time earnings growth is improving. The Citigroup Economic Surprise Index, a gauge of how economic data is coming in compared to expectations, is at its lowest level since 2011.
That's not good news. It means there has been a lot of economic data that has disappointed recently. This week, Goldman Sachs revised down its second-quarter GDP tracking estimate by two-tenths to 2.3 percent following a weaker-than-expected durable goods report.
Bonds, not surprisingly, have been strong in the second quarter.
But there's no disappointment in earnings land: First-quarter earnings are up 15.3 percent, and second-quarter earnings estimates are also up a healthy 7.9 percent, according to Thomson Reuters. Third-quarter estimates are up 8.7 percent, and while the forward estimates usually come down, early second-quarter earnings reports have been solid.