Bulls Are in Control, but Bears Are Getting Loud and Annoyed
While good earnings and economic optimism are driving market momentum, hundreds of names are set to report results this week.
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With all the major indexes hovering near all-time highs, the key question this week is whether positive momentum will continue. Technical conditions are extended for the indexes and many stocks, but that has been the case for a while now, and it hasn’t been an issue.
The bears have their usual list of negative arguments, including valuations, interest rates, and economic conditions, but so far they have had no impact on market sentiment at all. Indeed, the fact that there is little worry and many market participants appear complacent is a contrary indicator that the bears are advancing.
The bulls have an ideal combination of strong momentum and economic optimism that has been fueling the market. So far, earnings season has been good, with banks and Netflix NFLX generating positive results. There is little concern about interest rates moving higher, but that has been offset to some degree by stronger-than-expected economic growth in various places. It is still highly likely the Fed will cut rates by a quarter point in November and December.
Earnings season picks up steam this week with 112 S&P 500 stocks reporting. We will hear from companies such as Tesla TSLA, General Motors GM, GE Aerospace GE, Lockheed Martin LMT, and SAP SAP, but the reports from the big Magnificent Seven names won’t start until next week. So far, the reaction to earnings has been quite good, with about 80% of S&P 500 names beating estimates, and there is no inclination toward a "sell the news" reaction.
There are no major economic reports on the agenda this week, but there will be endless reporting about the presidential election, which is now just two weeks away. One question that many market participants are pondering is whether Donald Trump’s recent gains in the polls are serving as a tailwind for the market that may prefer his economic policies.
Another issue that is bullish has been the rotation action that is taking place. The Russell 2000 IWM has outperformed recently and has been near its highest closing point since late 2021. The trading action is no longer narrow, with just the Magnificent Seven names pushing the indexes higher. The market has broadened, and leading groups such as semiconductors have struggled a bit while market players are focused on finding new places to put their cash.
While the bulls are winning the battle, our job is to watch the price action carefully. Is there a catalyst, such as earnings reports or economic news, that will shift the action? We need to be ready to shift direction, but the trend is still up, and trying to guess a turning point is an impossible task.
We have a little early softness, but dips on Monday morning have a high likelihood of attracting buyers.
At the time of publication, Rev Shark had no positions in any securities mentioned.
