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“Quick decipherment is very important to avoid the systematic errors which invariably arise from prolonged reflection.” – Jean Francois Champollion

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224 years ago today a group of scholars who accompanied Napolean on his invasion of Egypt discovered a large slab of rock with hieroglyphic writings and other inscriptions in ancient Greek.  They had no idea what the inscriptions meant, but they figured it had some significance, so they loaded it into their wagon and took it back to Europe with them.  For years after, they tried to figure out what the writings meant, but it wasn’t for another 23 years before French philologist Jean Francois Champollion was finally able to decipher the “riddle of the Sphinx” and unlock the meaning of ancient Egyptian writings.

The Rosetta Stone may have taken decades to translate so that Europe’s ‘enlightened’ could fully understand its meaning, but investors have been trying for centuries to fully understand and translate the messages of financial markets, and for all the time, talent, and treasure, that has been spent trying to separate the noise from what’s really important, most investors are nowhere closer to understanding Mr. Market’s riddle now than when they first started…and anyone who is, isn’t telling!

One riddle a lot of investors can’t figure out this summer is what’s behind the levitating market.  The S&P 500 has closed at overbought levels (1+ standard deviations above its 50-day moving average) every day since Memorial Day and the Nasdaq has been overbought since Cinco de Mayo. For ‘enlightened’ investors who had it all figured out that the ‘bear market rally’ from the October lows was going to reverse itself in the wake of, among other things, the bank failures in March and the debt ceiling deal in June, it’s back to the drawing board.

Futures are modestly higher this morning, and the weaker-than-expected Building Permits and Housing Starts report didn’t do much to derail the positive tone.  Both Building Permits and Housing Starts came in weaker than expected, missing estimates by 46K and 60K, respectively.  Not only that but May’s big 231K beat was revised lower by 72K.

The pace of earnings has been moderate and results relative to expectations have been mixed.  Three notable EPS misses this morning have come from Financials like First Horizon (FHN), Goldman Sachs (GS), and Northern Trust (NTRS).

Besides trading at short-term overbought levels since early May, the Nasdaq 100 is also trading at a pretty extreme reading relative to its longer-term 200-day moving average.  As of yesterday’s close, the index traded more than 26% above that level which is the most stretched reading in this indicator since September 2020 coming out of COVID, and before that late 2009 coming out of the Financial Crisis.  While they were more common prior to 2000, these kinds of extremes don’t happen too often. Try to decipher the meaning of that one.

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