You’ve probably heard that the stock market climbs a “wall of worry”…
Well, folks… this is what it feels like.
I’m sure you’ve seen all the “bearish” headlines about a credit crunch, an impending recession, a sharp drop in corporate earnings, and other cases of doom and gloom.
Today, many investors are concerned about the state of the U.S. economy…
Are we on the brink of a recession? Will it be a “soft” or “hard” landing?
And of course, people are still keeping their eyes on interest rates today. They’re directly tied to the inflation picture and the future of corporate earnings.
But in the real world of buyers and sellers… the buyers are still in charge.
That’s what a bull market is all about. And it’s playing out in real time right now…
Not long ago, the stock market finished a strong first half of 2023. The S&P 500 Index gained about 16% through the end of June, while the Nasdaq Composite Index surged roughly 32%.
This bull market is different, though…
You see, technology stocks are leading the charge once again. But this time, energy and financial stocks have been left behind in “bearish” and “neutral” trends.
When you add in the aversion to interest-rate-sensitive sectors like utilities and consumer staples, you’re left with what I call a “bifurcated bull market.”
In other words… we’re living in a stock picker’s market.
Collectively, second-quarter earnings were expected to fall about 7% year over year. That would make three quarters in a row of declining earnings for companies in the S&P 500.
If that’s not a recession, we should redefine the term.
We’re now on track for a roughly 5% decline in corporate earnings in 2023. That would be the largest year-over-year decline since the pandemic-driven results in 2020.
The fundamental bears have been front and center in the financial media, of course. They’re waiting for the other shoe to drop.
But it’s not all bad…
Just look at Amazon (AMZN). In its most recent quarter, the online retail giant beat Wall Street estimates on profits and revenue. And it raised its guidance for the coming quarter.
That’s a ringing endorsement for the strength of the U.S. economy. So it’s no surprise that stocks have been making new highs and breaking above previous resistance levels…
Folks, the market is still grinding higher. Despite the turbulent earnings season, the S&P 500 is up around 3% since late June. And the Nasdaq is also up about 3% over that span.
Now, those numbers aren’t huge. But it shows us that the market is still working its way up.
It’s also OK if we see a short-term pullback. That’s healthy in a longer-term bull market.
In short, I’m still “bullish” on stocks today. And I still recommend focusing on opportunities in strong industry groups with “bullish” or better Power Gauge ratings.
Continue to take advantage of any broad market pullbacks between 3% and 5%. That’s when you want to add to your current holdings.
Put simply, the stock market is showing significant signs of strength. And the recent trend remains firmly in our favor.
I expect to see further gains throughout the rest of 2023.
Even if the S&P 500 sees its usual bumps in the road in September and October, a strong December finish could carry the index up to between 4,800 and 5,000. That’s 7% to 12% potential upside from its current level.
A “buy the dip” approach is the right strategy in the current market climate.
Good investing,
Marc Chaikin
