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As of the close in New York today, February 9, the Standard & Poor’s 500 was down 0.88% and the NASDAQ Composite was off 1.02%. That’s not a big absolute drop but it does mark quite a turnaround from earlier in the day. At 9:51 a.m. the S&P 500 was up 0.89% and the NASDAQ was higher by 1.21%.

It’s a tribute to the strong bullish sentiment in this market (of which more later in this post) that stocks have held this ground. Certainly, macro “facts” continue to line up against an extension of this rally.

Besides the continuing debate about where (and when) interest rates may peak, today we’ve got a continued inversion in the yield curve for Treasury bonds.

An inverted yield curve–where the yields for short-term Treasuries are higher than the yield on longer-term Treasuries–is a traditional sign of an impending recession. (Yields on long-term term Treasuries would be lower because the market is anticipating an economic slowdown that would send interest rates lower.)

Right now we’ve got a whopper of an inversion. The two-year yield exceeds the yield on the 10-year Treasury by the widest margin since the early 1980s. As of the close today, the yield on the 2-year Treasury was 4.47% and the yield on the 10-year Treasury was just 3.63%. In this case, I’d say the inversion is a vote of no-confidence in the Federal Reserve’s ability to bring inflation under control without triggering at least a moderate recession.

Other macro indicators are also pointing to tougher going for this rally.

Money managers have cut $300 billion of bearish bets and are now positioned more in line with historic norms. That reduces demand on the long side for stocks and suggests that there’s less fuel from bearish investors turning bullish to drive this rally upward. The shift in positioning has taken a broad array of investors from underweight to holding equities closer to the average of the past decade. Investors are now the closest to neutral positioning than they have been since the second quarter of last year, when the Fed began ramping up interest rates, according to data from JPMorgan Chase and Deutsche Bank.

And finally, the latest survey of individual investors from the American Association of Individual Investors (AAII) shows that U.S. retail investors have turned bullish for the first time since April, with the bull-bear spread rising to 12.5 from -4.7 a week earlier. The percentage of investors with a bearish view over the next six months fell to 25%, the lowest since November 2021. Wall Street, always out to deride the little investor, sees a rise in bullishness by retail investors as a contrarian indicator. Retail investors get more bullish as stock prices rise and that can signal that stocks are ready to peak.

Add these last two sentiment indicators to the weak earnings picture this quarter and I find it hard to make a case for this rally to continue.

And it looks increasingly vulnerable to talk of higher interest rates from Federal Reserve officials.