Bull or Bear?

Written and Submitted By David Vomund

While that question is just semantics, the technical definition (a 20 percent or greater move) points to a bull market.  The S&P 500 is 21 percent above its October 2022 low and is up 13 percent this year.  But the S&P 500 is overstating the strength of most stocks, which is why others call it a bear market.  I find it encouraging when I hear the bear label.  Such skepticism is good for stocks.  

I keep saying that investing is all about earnings and interest rates.  The news on the earnings front has been good.  For the most part Corporate America is doing well as we saw in the initial number for third quarter GDP.  But the Treasury needs to sell $1.7 trillion in new debt over six months. To whom and at what cost?  Buyers, overwhelmed by the new offerings of $1.7 trillion, may demand higher rates.  That alone would put upward pressure on rates no matter what the Fed is doing.  Clearly, the Treasury should have issued long-term bonds when interest rates were near zero.  

Inflation, the ultimate enemy of financial assets, remains on a slow downward path.  While core inflation (ex food and energy) is less than four percent year over year, excluding food and energy is why people feel that prices are rising faster than they are being told. The inflation rate for food and energy alone is more than six percent.  Shoppers and drivers know it.

Investors in stocks most sensitive to the economy are saying there are ample signs that the economy is softening, including September’s employment report.  UPS and FedEx see it in demands for delivery.  MasterCard and Visa see it in the number and dollar amount of transactions and credit patterns.  That is why stocks fell for three straight months.  The good news is that November is the market’s strongest month (since 1950) and December is number three.  After the down summer there should be better days ahead and a year-end rally.  

One last point.  Stocks and bonds both rallied big time last week with little in the way of news.  One can’t wait for better data and headline news — an all-clear signal before acting.  One needs to anticipate…and be right.  As the late Joe Granville once said, “If it’s obvious, it’s obviously wrong.”  Indeed.  Investors are anticipating rate cuts and earnings growth.  They’ll be right, but when?  Soon would be nice.

David Vomund is an Incline Village-based Independent Investment Advisor.  Information is found at www.VomundInvestments.com or by calling 775-832-8555.  Clients hold the positions mentioned in this article.  Past performance does not guarantee future results.  Consult your financial advisor before purchasing any security.