Is the stock market bottoming out? What the professionals say after testing the S&P 500 for 4000

Stock market bulls are hammering their heads above the barrier, announcing 2022 selling lows as indexes extend their bounce from June lows, while skeptics still see little evidence of more than a bear market rebound.

S&P 500 SPX Index,
-0.93%
It fell 0.9% on Friday to close at 3,961.63, but recorded a weekly rise of 2.6%, the largest since the week ending June 24. It traded at 4012.44, breaking the 4,000 threshold for the first time since June 9.

As the old saw says, disagreements like these are what makes the market. Here’s a look at where the bulls and bears – and among them – are standing right now.

wide upward

Market scaling – measures of the number of stocks in an index participating in a movement – “confirms that 2022 is a ‘bottom’,” Fundstrat Global Advisors’ Tom Lee wrote in a note Thursday evening.

“We are starting to see an in-house consolidation in equity markets, including major leadership improvements from technology ($QQQ) and small businesses ($IWM) and measures such as advance/decline streaks,” Lee wrote.

Other bullish factors include signs that inflation risks are easing with lower gasoline prices and lower food prices, while second-quarter earnings have so far been better than feared, and companies have reported easing “supply chain” problems, Lee said. Also, a number of bullish Wall Street strategists have previously given up, lowering their targets for the S&P 500 by the end of the year, while institutional investors are arguably approaching “maximum pessimism” based on a survey by Bank of America that showed overall market exposure at 2008 levels.

to give in

The question of whether the bulls have completely given up, exhausting the pool of potential sellers and paving the way for a permanent bounce, is still a matter of debate.

Barry Bannister, who told CNBC on Friday, said futures positioning by speculators was “incredibly bearish.” Bannister, who described the S&P 500 as in a “secular” bear market earlier this week, reiterated his call for a 10% rebound from the June low capable of taking the index to 4,000 seconds in a cyclical-led relief recovery. growth stocks.

On Friday, he questioned whether the S&P 500 would break lows in June, arguing that he expects a typical mid-cycle decline rather than a full-blown recession. He said the S&P 500’s drop to its lowest level in June, in real terms, was not far from the usual downturn that accompanies a recession.

Skeptics

In the meantime, skeptics contend, it’s still too early to look entirely clear.

Mike Wilson of Morgan Stanley, who correctly forecast the selloff, argued earlier this week that the market’s “countertrend rally” may continue, but the bear market is not over yet, even if the US economy avoids a recession, according to Bloomberg. Wilson previously warned that a full-blown recession could send the S&P 500 down to 3000.

Skeptics remain unconvinced that there is enough surrender by the bulls to pave the way for a permanent rally.

“With such a massive downtrend embedded in stock prices today, some are suggesting that now is the time to add significant exposure to stocks. The markets certainly could be technically oversold, and we think the long-term outlook for stock returns has improved significantly since The beginning of the year, but that is very different from saying that the markets have bottomed,” Dan Suzuki, deputy chief investment officer at Richard Bernstein Advisors, said in a note on Friday.

Suzuki offered a laundry list of reasons why investors likely didn’t give in enough to ensure a bottom in the market.

These include ratings that remain high, albeit significantly lower than their peak; Wall Street strategists still recommend 54.6% of the capital, just below the long-term average of 56.2%; Wall Street buys stock ratings at 57%, almost the highest in a decade; volatility readings that remain below levels that would normally indicate a bottom; And stock flows that indicate investors are still buying.

Meanwhile, widespread talk of surrender creates an irony of its own.

“If everyone is eager to get into the market at the bottom, it probably means that we are still quite a long way from real capitulation,” he said.

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