2023-05-27 02:26:20 ET
Summary
- Bulls and bears continue their trench warfare. This might be the same movie we saw in 2022 but with different players.
- The bifurcated market moves to the next level; it's artificial intelligence (AI) or it's nothing.
- It is definitely a glass-half-full mindset now, but the latest inflation report keeps the Fed engaged.
- A handful of stocks are leading the way, and how long that lasts is a 'key' to how long this rally lasts.
Earnings season is over, and barring a major inflation shock, the consensus says the Fed has probably increased interest rates for the final time in this cycle. If it wasn't for the Debt Ceiling negotiations, I would be inclined to believe investors were about ready to step back and digest all that has occurred in the first four-plus months of the year.
The rally off the Octobers, led by big gains in large-cap tech, left the BEARS in pause mode as they believed they had this scene under control. Now they hear that the "R" word is being talked down as Goldman Sachs still only sees the odds of a recession in the next 12 months at 35%. Those who do see a Recession coming have labeled it "mild". The theory is that a mild recession was likely priced in at the October lows, and there will be little need to go back and test that range again.
The BEARS are watching their case fall apart as many more analysts are advertising sunnier days ahead and are back to advising pullbacks that are to be bought. Inflation numbers have peaked, and the Fed is near a pause. Another reason for the rosy outlook they cite certain segments of the stock market are in a new BULL market. While other areas are about ready to enter into a positive Bullish trend as well. Earnings were much better than expected, and despite the cries about narrow leadership being less than an ideal backdrop, rotation is more positive than broad-based weakness.
Furthermore, forget about this year's earnings. 2024 EPS forecasts are in the $230-$240 range for the S&P and the stock market is going to be pricing that in as the summer rolls on. Simply stated unless the BEARS step up their game soon, they might be forced into hibernation for a while.
They do have some facts on their side, but with sentiment in a positive feedback loop , no one wants to pay attention to facts these days. Unless we toss out every indicator that has predicted a recession in the past that is aligned with a coming recession today, there is no way the US dodges a period of negative growth for at least two quarters.
Now the BEARS can add another issue that includes the "jobs" scene to the mix.
Bespoke Investment Group;
In the entire post-war period, there has never been a decline in the job openings rate as large as what we have seen over the past year that was not accompanied by a recession and a large rise in the unemployment rate . Many economists take this observation as a sign that the worst is yet to come."
So unless this indicator is going to fail like all of the others in forecasting a recession and this cycle is different, then and only then will the US escape a downturn.
In addition, they can always point to the NY Fed's recent assessment of the economy.
That view shows the probability of a recession in the next twelve months has climbed to its highest level since 1982.
Peak inflation is in the rearview mirror but it's hardly DEAD and nowhere near the Fed's 2% target.
Despite earnings receding, the oversized gains in the tech sector have left valuations near the top of the recent range, in absolute terms and relative to interest rates. Not to mention, the obsession with Artificial Intelligence is adding to the "bubbly" mood. Anything that is remotely connected with AI is now the hottest thing on the market. Everything else matters little, and that leaves a scant few stocks keeping the indices elevated. BEARS will argue that is always a positive in the short term, but over time, that is an uptrend killer.
Interest rates are no longer at 0% and PEs should be contracting not expanding. Not to mention the "risk-free" alternatives around. While other segments of the market are much cheaper, there are enough concerns about the impact of the ongoing credit contraction and the decelerating economy that can cloud their outlook. As far as the buoyant corporate EPS forecasts for '24, applying a PE of 18 to the top end of the range ($240) yields an S&P that is fairly valued at ~4300. That is well short (~11%) of what is needed to break the long-term BEAR downtrend. Forget about the emergence of a new BULL market trend.
Limbo
So here we are again. Seven months removed from that low in October, 16 months removed from the last S&P high, leaving stocks in "limbo" as BULLS and BEARS are engaged in trench warfare with neither side making much headway. They both have strong ammo supporting their flanks, which probably helps to explain why the market doesn't feel much like a BULL or a BEAR.
The BULLS have their strategy set for a buoyant stock market that will climb a "Wall of Worry" as their new AI "toy" has everyone feeling optimistic. For the moment they have control of the microphone. The BEARS have some valid points but there aren't too many who are listening now. It's hard to shout over an oncoming train that is called AI. With that being the case I see a period of range-bound activity for most of the market. Depending on how an investor is positioned, party hats will be placed on some heads, while other heads will be scratched.
The Week On Wall Street
The NASDAQ entered the week on a four-week winning streak while the other indices were treading water. That backdrop remained the theme for this week's trading action. The S&P 500 eked out a 14-point gain, while the NASDAQ broke out of its trading range and extended its winning streak to five weeks. In the meantime, the DJIA and Russell were flat on the week.
The Economy
The second read of Q1 GDP was released this week by the Bureau of Economic Analysis. Whereas the advanced release saw GDP growth at 1.06% QoQ annualized, the second read saw this revised up to 1.3%. Core PCE was also revised higher from 4.9% to 5%.
Inflation
The PCE report shows more disappointment and is confirming that inflation remains stickier than many economists want to admit. Core PCE the Fed's key inflation gauge remains elevated. April PCE CORE price index is up 0.4% vs. last month vs. consensus of 0.3%. For the year April core PCE price index remains elevated at 4.7% vs. consensus 4.6%.CORE PCE ex Food and Energy remain little changed for the Jan rad at 4.8%.
Manufacturing
Philly Fed Manufacturing improved but remains in negative territory. The index for current general activity rose from a reading of -31.3 last month to -10.4 this month, its ninth consecutive negative reading. Nearly 35 percent of the firms reported decreases (unchanged from last month), exceeding the 25 percent reporting increases; 41 percent of the firms reported no change in current activity (down from 59 percent last month).
US PMI Services at highs. Manufacturing remains in contraction.
US PMI Composite Output Index at 54.5 (April: 53.4). 13-month high. Services business Activity Index(2) at 55.1 (April: 53.6). 13-month high.
Manufacturing Output Index(4) at 51.0 (April: 52.4). 2-month low.
Manufacturing PMI (3) at 48.5 (April: 50.2). 3-month low.
Sentiment
Michigan Consumer sentiment slid 7% amid worries about the path of the economy, erasing nearly half of the gains achieved after the all-time historic low from last June. This decline mirrors the 2011 debt ceiling crisis, during which sentiment also plunged.
This month, sentiment fell severely for consumers in the West and those with middle incomes.
The Global Scene
UK inflation and a disappointing report out of Germany were catalysts that moved the EU market lower during the week.
The UK inflation report was a shocker. Economists were forecasting headline inflation to rise 8.2% which would have been a nearly two-percentage point decline relative to March's reading of 10.1%. The actual reading, however, came in 0.5 percentage points higher at 8.7%. Outside of the last year when every other reading was higher than April's, it was the highest y/y reading since May 1982 and came up just shy of falling below the peak of 8.4% from June 1991.
Given the market's chief concern is inflation, this is not considered a positive.
In Germany, IFO data was weaker month over month breaking a streak of impressive rebounds which came during a milder-than-expected winter. The headline German IFO Business Climate Index edged lower to 91.7 in May from 93.4 in April. This reading came in weaker than the market expectation of 93.
The German economy has now moved into recession territory as Q1 GDP was revised to a decline of 0.3% following Q4's contraction of 0.5%. Despite the recession in Europe's largest economy, ECB policymakers are out this morning calling for more rate hikes to combat rising wages. The reason is Inflation remains stubborn at 7.2% .
Global PMI reports were released this week. Outside of Japan, flash manufacturing PMIs from S&P Global/Markit broadly continued to decelerate during May; Germany's was especially weak, hitting the lowest levels since May 2020
On the other hand, services PMIs look genuinely strong, uniformly accelerating across the world economy over the past few months.
Composite Output Index at 53.9 (Apr: 54.9). 2-month low.
Services PMI Business Activity Index(2) at 55.1 (Apr: 55.9). 2-month low.
Manufacturing Output Index(3) at 47.4 (Apr: 49.3). 4-month low.
Manufacturing PMI(4) at 46.9 (Apr: 47.8). 5- month low
Composite PMI at 53.3 (April 54.2 - 3 month low.
Services PMI at 55.9 (April 56.2) - 2-month low
Manufacturing PMI Output Index at 46.3 (April 48.5) - 6-month low.
Manufacturing PMI at 44.6 (April 45.8) - a 36-month low.
Japan - continues its uptrend with its strongest rise in private sector activity since October 2013
Composite Output Index, May: 54.9 (April Final: 52.9)
Services Business Activity Index, May: 56.3 (April Final: 55.4)
Manufacturing Output Index, May: 51.9 (April Final: 47.9)
Political View
As the deadline looms, traders don't seem too interested in what is going on with the debt ceiling talks. There was some semblance of progress in the debt ceiling negotiations reported, but no deal was struck. One thing we can probably bank on is that it will go down to the 11th hour and the 59th minute. There is plenty of rhetoric going around about what can and can't be done if a deal is not reached.
The talk about using the 14th amendment to somehow avert a disaster is not a viable option as it would be challenged immediately, and more than likely be overturned by the Supreme Court as being unconstitutional. The 14th Amendment was not intended for this purpose, anyone speaking to that as a solution is seriously misled. Invoking that could create more chaos.
Second, Social Security and Medicare payments are not at risk. Both are paid from their trust funds and have nothing to do with what is in the government coffers. The same for the VA administration.
Third, the claim that the debt ceiling is always passed as a "clean" bill with no strings attached is more political rhetoric, that is false. What we are witnessing this year is no different from past debt ceiling events. Both the 2017 and the 2019 debt ceiling bills were passed with additional spending that was a request made by the Dems to strike a deal. In 2019 the bill added $1.3 trillion for defense and domestic spending over the next two years.
Finally, the notion that the request for work requirements tied to the Food Stamp program is NOT going to take food away from needy seniors. The proposal is intended for "able-bodied" individuals. The elderly, those with special medical requirements, and disabilities are excluded.
How much is a Trillion?
When we talk spending and budgets, the word "trillion" is tossed around constantly these days. For many, it has no meaning at all, we've all been "conditioned" to "trillions" added to spending and budgets. I asked ChatGPT how much I would need to spend each DAY for 30 YEARS to reach a trillion dollars.
The Answer;
That is 91+ million dollars per DAY.
Food For Thought
Given the admiration for "everything green" and the love affair with Wind and Solar power, (anything fossil fuel related is considered a poison), the world is already on an unsustainable path to provide reliable energy needs.
The rush to the edge of the "green" cliff continues. The bans on natural gas use are gaining more traction as the move to "all-electric" simply requires more electricity generation. "Everything Electric" is what the new world order has deemed the only way to survive. California is banning gas-powered vehicles and at the moment seven other states have jumped on that train. If I didn't mention this before, that simply means more electricity generation.
What I'm trying to say is that we will need to produce MORE electricity at our Power generating plants. I keep repeating that because it sure seems that message is being dismissed by the "all-electric" army.
AI (Artificial Intelligence) is the new shiny object that has many hypnotized into how it can transform the world. The problem; it's an energy-consuming beast . That poses yet another big dilemma for the green movement. Innovation and growth demand reliable energy , and no answers are coming from the folks that want to be carbon-neutral in an unreasonable time frame. What they have proposed as alternatives are at the moment, POOR substitutes for fossil fuels.
Then again we probably won't go over the cliff, because the entire movement has an excellent probability to fall apart as demand escalates. The EV transition will reach a point and then either slow considerably or stop on a dime. Even if we were to mine all of the minerals that are needed for the transition (not happening today), it is China that "processes" all of these materials. An eighth grader can now tell us what the probabilities are that China continues to cooperate in keeping our transition and economy going.
That vulnerability can stop the "all-electric dream" in its tracks and while this green movement may not take the US over the cliff, the economic pain will be death by a thousand cuts. We are now about to enter into year three of this war on fossil fuels and the longer it continues the worse it is going to get for the US economy. It won't happen overnight but rest assured it's a BIG part of the MACRO scene, and it isn't positive. The other takeaway; As the demand for reliable power sources increases, so will the demand for fossil fuel energy. That keeps a floor under prices. Only a shift to Nuclear (low probability) changes this narrative completely.
The Daily Chart of the S&P 500 ( SPY )
The last 16 trading days have seen the S&P 500 carve out a narrow 100-point trading range. S&P 4100 was tested as support this week and it held nicely. The same can be said for the upper band. The index did close at 4205, but we can hardly view that as a monumental breakout. The BULLS will now want to see some follow-thru on the positive price action to keep the rally going.
Meanwhile, the BEARS are now starting to get nervous. Technology makes up about 28% of the S&P index and that includes the BIG 7 large-cap tech names that are all on breakouts. Their continued strength can drag the S&P along with it.
Investment Backdrop
The BEARS were on cloud nine and looking to take more victory laps heading into the weekend of March 11th. On Friday, March 10th, Silicon Valley Bank (SIVBQ) went under, and investors went into the weekend wondering just how bad the sudden bank crisis might get. Since that Friday, however, the S&P 500 is now up 8%, driven by mega-cap Tech and Tech-adjacent names.
The stock characteristics that are driving performance since then are somewhat remarkable.
Stocks with low P/E ratios - down 7.5%
Low Price/sales ratio - down 1.8%
Highest dividend yield - down 7.6%
Conversely, stocks with high valuations, high prices/sales, and no dividends have gained 6%, 8%, and 10% respectively.
It's hardly surprising that "investors" are scratching their heads now, while "traders" are shooting fish in a barrel. The recent analysis left the door open for the possibility of a move in the S&P 500 to the 4250-4300 range. More evidence has been presented that keeps that probability on the table. However, I haven't changed my opinion on this market. Unless I see a definitive change in the technical and fundamental scene (one that makes me rethink the entire MACRO view), I do not envision a rip-roaring BULL market emerging. Instead, a stock market that at best will carve out a trading range. How large of a range remains unknown.
For sure the bifurcated market scene is going to be here for a while. Contradictory indicators are sending conflicting messages that keep the late December '22, and early March lows in play along with a move higher that might surprise some investors. The higher the stock market goes on poor breadth makes it vulnerable. Unless that turns around, the upside is limited.
The stock market, as measured by the S&P 500, has gone nowhere since the beginning of April. If we zoom out more, it has gone nowhere since the start of February. Still more and it has gone nowhere since late August. Keep going and going and going and…well…the index currently sits where it did way back in April 2021, more than two years ago now. That is a long time for the standard benchmark for stocks to show no progress, and we are now about 16 months past its last new high. Even those who still argue that this is a "bull market" must concede that ~1.5-2 years without gains is stressing the definition to its limits. Then again the S&P is taking a backseat when it comes to representing the market.
In the near term, Nvidia ( NVDA ) may have single handily re-energized the BULL case. However, the price action revealed it was AI and AI-related technology that drove this week's gains. Commodities across the board were sold. Only 3 sectors were higher on the day NVDA rolled higher. Selectivity remains the focal point of my near-term strategy. The action in Nvidia will more than likely keep the BIG 7 mega caps strong for a while longer, and that keeps the bifurcated market backdrop in place. The question is how to play that strength. I've assembled a near-term strategy that is a more conservative way to keep an investor involved in the Technology momentum. It's called "Rent a Stock " and is available to members of the Savvy Investor Marketplace service.
Bifurcation - Fixed Income and Stocks
Ever since the Federal Reserve started talking about hiking rates at the start of 2022, stocks and bonds have been joined at the hip. Using the iShares 20+ Year Treasury ETF ( TLT ) as a proxy for the bond market, the correlation between its closing prices and the S&P 500 (using SPY) has been +0.79, implying a very strong correlation.
Visually, it's also easy to see the relationship as the two sold off throughout most of 2022 and then bottomed out early in the fourth quarter. From those lows through early April, the positive correlation between the two continued, but ever since then, the paths of the two ETFs have diverged.
Since April 6th, TLT is down 6.8% while the S&P 500 is up 2.7%. As the sell-off in Treasuries has picked up steam in recent days, some market watchers have been expecting stocks to start following suit. Bulls, on the other hand, are hoping that this is the start of an amicable separation between the two.
Small Caps
Similar to the S&P 500, the small-cap Index ( IWM ) was rejected at resistance. It's more of an issue for the small caps because they have been lagging for the entire year. The long-term chart remains decidedly BEARISH.
Sectors
Energy
I continue to HOLD my energy exposure at the same levels. The Energy ETF ( XLE ) rebounded early in the week, met resistance, and is back to testing support. I recently published a report suggesting it is time to add the refiners. My two favorites remain Marathon Petroleum ( MPC ) and Valero ( VLO ). For starters, they have decent dividend yields of 2.8% and 3.2% respectively. After a big run last year, sentiment has flip-flopped throughout 2023, with the most recent change causing a ~20% sell-off in refining equities, as Bullish interest has shown signs of weakening and hedge funds have been more negatively positioned.
Investor sentiment toward the group has been as bad as I've seen in quite some time, at least back to 2021. I believe this sell-off was overdone. Developments with the macro will likely continue driving day-to-day trading action as refining equities seem to have found their footing over the past week or so, and with it, sentiment. I note that both MPC and VLO have maintained their Long term BULLISH trends.
Overall, I see the overall macro environment supporting still-strong earnings within the refining, and if the crack spreads bounce into summer as is expected with gasoline demand ramping up, the stocks will too. Given the recent sell-off, the risk/reward into the end of May and June screens as positive for refining. Shareholder returns should continue well in 2023 and well into 2024 as robust balance sheets provide a cushion from any macro weakness.
As mentioned, my favorite names remain MPC and VLO. For those that want to reach for a little more yield (4.5%) look at PSX. It is also in an LT BULL trend.
Natural Gas
Anyone following the Natural gas ( UNG ) trade doesn't need me to tell them it's been a widow maker. The decline has been historical, and I've noticed a slight change in the short-term trend.
It could be the first step in a BEAR to BULL reversal pattern that will play out in the coming months. Then again it might just be a long-awaited bounce that will eventually fizzle and take the ETF lower. There does appear to be a "trade" here. The chart indicates a GAP around the $9.25 level that this uptrend can navigate to. That is more than 30% from the $6.65 closing price on Friday.
Speculators can start to build a position in an attempt to play a reversal pattern that will take time to play out.
Financials
Growing concerns about the health of the banking sector have dominated recent news headlines. Volatility, particularly among a few select names, continues to weigh on sentiment as market participants try to gauge what impact the recent bank failures will have on the broader economy. The Fed's latest quarterly survey of bank lending conditions reported that banks, particularly smaller banks, tightened lending standards further, extending a trend that was well underway in the months preceding the recent turmoil.
While the media is running with this story we have yet to see any major spillover effects on the broader economy that would warrant any major changes in economic forecasts. My view from the outset has been one that realized this is not a systemic issue, but the 'technical' damage done by the selloff places the entire Financial sector in the penalty box.
The Financial ETF ( XLF ) posted a four-day rebound rally before giving it all back. The repair process will be long and tedious. The longer-term picture of the XLF continues to show a BEARISH pattern, so I can't get overly excited about the group now. I maintain my CORE holdings for exposure to the sector, but I am not inclined to add to the sector.
The regional ETF ( KRE ) put together an 8-day rally before resistance asserted itself. There are "select" opportunities, but at the moment the sector is a very difficult one to be dabbling in. I'd suggest looking into the "preferred stocks" of these banks as they have also been discounted to the point where they will provide outsized income and a chance for appreciation while you wait for a rebound.
I've added two names in the past two weeks offering excellent prospects for above-average income and a chance for appreciation.
Homebuilders
This is a sector of the market that I have blown. Not only did I miss the transition to a Long Term BULL trend in January, but I didn't feel it was necessary to chase the group. Here is a perfect example of letting what appears to be a down-trending economy with higher mortgage rates as a detriment trump the technical pattern.
This move in the Homebuilders (XHB) can only mean one thing, housing has bottomed, and it may not take off, BUT for now, the group has seen the lows. At least that is the markets message today.
Healthcare
Sideways trading and back to the trend line for the Healthcare group ( XLV ). Money is flowing out of almost everything else and into technology. The best way to avoid volatility is to stay with the strong momentum names that are in good uptrends. More importantly, they also possess strong underlying technical support and good fundamentals.
Biotech
The Biotech ETF has carved out a trading range between $74 and $92 since last July. The ETF would need to get back to the February high to reinvigorate the BEAR to BULL reversal pattern. In the meantime, it's sideways. This ETF is an excellent choice to sell calls against.
Gold
Last week we discussed the big-picture chart of Gold, and it still looks good. The only problem is that too many people in "the crowd" seem to see the same thing that I am seeing. A recent Gallup poll showed that Gold has overtaken stocks as Americans' preferred long-term investment (though still below Real Estate). I never like being on the same side as the crowd who largely make their decisions based on headlines and nightly news.
Just as everyone was getting all psyched up on Gold/Silver last month in anticipation of the Fed pausing their hikes, the metals put in a local top and have spent most of the month declining. They have now pulled back to an area that should offer some decent support. This is a good risk vs reward place to buy or add to the metals, but if they keep dropping below present levels, it's going to increase the odds that we've seen at least some sort of intermediate top.
The Gold ( GLD ) ETF has stabilized but is teetering at support.
Silver
Meanwhile, the Silver ( SLV ) ETF shows a similar pattern. My recent "add' is looking to be premature as the metal could be headed to the $20-$20-50 level.
Uranium
The choppy pattern for Uranium ( URA ) continues, and in the very short term, we see a series of higher lows since the March lows. The metal caught a bid on a news report that the next generation of nuclear reactors is being designed to fit into a standard shipping container and be delivered on a truck. A small modular reactor commissioned by the US Defense Department may leave a BWX Technologies Inc. factory in two years.
The strength dissipated quickly as money was moving out of most everything anything and into Technology.
Technology
There is little doubt that AI (Artificial Intelligence) and all that goes with it is real, with the ability to be transformative. A breakthrough that could be as disruptive as the internet. There is also little doubt that in the infancy stage of any new disruptive technology, will at first produce a "bubble" that will eventually weed out the winners from the losers. Similar to what we witnessed with the internet and the 2000 bubble, the losers will outweigh the winners by a wide margin.
For now, the large-cap players are getting all of the attention and that has left their stock prices stretched. I expect that can and will continue for a while. Momentum and mania are difficult to rein in overnight. The moment we start to see small startups and a slew of IPOs hit the scene and the talk becomes ALL AI, ALL the time, that will more than likely mark the beginning of the end of the first phase . The smaller companies that emerge will then trade on HOPE, with prospects for earnings. E ventually, reality sets in and most of them will fizzle and disappear.
At about the same time, there will be a reversion where the large caps give back a good portion of these recent gains. The reason; monetizing AI won't materialize overnight. While they are solid fundamentally sound companies a reckoning will develop. Investors are piling in and are pricing huge upside earnings that aren't identified nor quantified yet. For sure, the large-cap players should trade at a premium to the market and I have argued that fact for years. However, I don't believe that is the same multiple when the Fed Funds rate was zero. That multiple has to be ratcheted down a notch when the Funds rate is 5%-6%, and the earnings are yet to be "quantified". Nvidia is now selling at 60x earnings and ~25x sales.
None of this is an attempt to dissuade anyone from playing a 'trend", and this trend may have some lasting power. What I advise against is any investor getting wildly overextended, as we saw with the SPAC craze a couple of years ago. That period produced plenty of losses for the average investor. For those that were active in 1999/2000, you understand where I am coming from, because to some extent I envision a mini-repeat of that event.
This also reminds me of the EV mania, where "anything EV" was a "BUY". That worked for a while until it didn't. The proof is right in front of us. Other than Tesla ( TSLA ), (the stock is down 50+% from its '22 high), the other EV stocks have been decimated, and are hardly viable players that continue to burn through money and have no earnings.
How many times over the last six months have you heard someone say that Alphabet (GOOG) ( GOOGL ) missed the boat on AI to Microsoft ( MSFT )? Things got bad for GOOGL after the rushed launch of Bard, its answer to ChatGPT, earlier this year. At that point, GOOGL was underperforming MSFT by a high single-digit percentage margin since the launch of ChatGPT at the end of November, and more than a few were questioning the company's future.
At its I/O event two weeks ago, though, GOOGL had a much more impressive presentation related to how it was incorporating AI tools into its services, and the stock has come climbing back nearly erasing all its post-ChatGPT underperformance gaining 24% compared to MSFT's 26% since the launch on 11/30/22.
While Alphabet may not have originally presented AI well, after the improved showing at the I/O event, the market is giving the stock another well-deserved look. Unlike some of the other BIG tech names, Alphabet is not selling at a wild valuation. I pegged it as one of my '23 favorites when I picked up more shares at $88.73 in late December.
Semiconductors Sub-Sector
The Semiconductor ETF (SOXX) looked poised to break out, and that is what occurred this week. It should come as no surprise since semiconductor companies are considered to be the heart of the AI revolution. No doubt about it, most of the individual companies that make up the ETF are extremely overbought in the short term, and a pullback wouldn't be out of the question. What level it occurs from, and what happens after that will determine if a new BULL market is emerging in the space. The recent blow-out EPS report from Nvidia will go a long way in keeping the momentum going.
Final Thoughts
Is it a BULL or a BEAR?
For a variety of reasons, this doesn't fee l like a BEAR market. For one thing, it's been about 7 months since the lows , and that isn't typical in a BEAR trend. The NASDAQ and NASDAQ 100 are at 52-week highs, and the semiconductors are looking ready to stage another leg higher. Meanwhile, the mega caps that have been the fuel for this rally are staging what can now be called a parabolic move.
On the flip side, it's been 16 months since a new high and that isn't typical in a BULL market. In the first stages of a new BULL market, we see an explosive move higher. Well, in essence, we have seen that with the mega caps that are found in the technology sector, but nowhere else. If this is the early stages of a new bull market, this would be the first time in history that we start a new bull market with such high valuations ( Nasdaq P/E is at 28, and SP500 P/E is at 19 right now ).
A possible scenario; We find ourselves in a replay of 2022, but with different players. This bifurcated market might continue with technology going in one direction and the rest of the market at a standstill. We saw that take place last year in the Energy sector. It was Energy, a smattering of Healthcare, and not much else. So far this year it's large-cap Tech and a little Health Care and not much else. However, there is a BIG difference. Chasing "Value" (Energy) is one thing, but chasing "Growth" can be difficult.
I will continue to be content with what the market is offering, in what remains a confusing scene.
THANKS to all of the readers that contribute to this forum to make these articles a better experience for everyone.
Best of Luck to Everyone!
For further details see:
Week On Wall Street: A Market In Limbo