Stock market bulls are poking their heads over the parapet announcing lows for the 2022 sell-off as stocks continue to rebound from their June lows while naysayers still see no sign of anything more than a bear market rebound.
S&P 500 SPX,
On Friday, it fell 0.9% to close at 3961.63, but posted a 2.6% gain for the week, the biggest since the week ending June 24. It traded to 4012.44, breaking the 4000 threshold for the first time since June 9.
As the old saying goes, it is these kinds of disagreements that make the market. Look at where the bulls and bears are now – and those in between.
Bullish by latitude
Expanding market coverage — a measure of how many stocks in the index are moving — “confirms that the bottom of 2022 is already here,” Fundstrat Global Advisors’ Tom Lee wrote in a note Thursday.
“We are starting to see an increase in internal factors in equity markets, including key improvements in tech ($QQQ) and small cap ($IWM) leadership, as well as measures such as up/down lines,” Li wrote.
Other optimistic factors include signs that inflation risks are easing as gasoline and food prices decline, while second-quarter earnings have so far been better than feared and companies report easing “supply chain” problems. Lee said. Additionally, a number of previously bullish Wall Street strategists have capitulated by lowering their year-end S&P 500 targets, while institutional investors may be close to “maximum pessimism,” based on a Bank of America survey that showed gross market positions at 2008 levels.
Whether the bulls completely capitulated, exhausting the pool of potential sellers and setting the stage for a long bounce, remains a matter of debate.
The positioning of futures by speculators is “incredibly bearish,” said Barry Bannister, who told CNBC on Friday that the summer rally could take the S&P 500 to 4,200 or 4,300. Bannister, who earlier this week called the S&P 500 a “long-term” bear market, reiterated his call to a 10% rebound from the June low, capable of pushing the index to a low of 4,000 points as a result of the rise caused by the cyclical index. growth stocks.
On Friday, he wondered if the S&P 500 would be able to break the June lows, saying he was looking for a typical mid-cycle low rather than a full-blown recession. The fall of the S&P 500 to its June low in real terms was not much different from the typical fall that accompanies a recession, he said.
Doubters, meanwhile, argue that it is too early to talk about complete clarity.
Mike Wilson of Morgan Stanley, who correctly predicted the sell-off, argued earlier this week that the market’s “countertrend rally” could continue, but the bear market is far from over even if the US economy does indeed avoid a recession, according to Bloomberg. Wilson had previously warned that a full-blown recession could send the S&P 500 down to 3,000.
Skeptics are also not convinced that the bulls will capitulate enough to clear the way for a sustained rally.
“With so much bearishness embedded in today’s stock prices, some are suggesting that now is a good time to add a significant share of stock. Of course, from a technical standpoint, the markets could very well be oversold, and we think that the long-term outlook for stock returns has improved markedly since the beginning of the year, but this is very different from the assertion that the markets have bottomed,” Dan Suzuki said. Deputy Chief Investment Officer Richard Bernstein Advisors, in a Friday note.
Suzuki offered a detailed list of reasons why investors probably didn’t capitulate enough to secure a market bottom.
These include estimates that remain elevated, albeit well below their peak; Wall Street strategists still recommend a 54.6% share allocation, just below the long-term median of 56.2%; Wall Street recommends buying stocks at 57%, nearly the highest in a decade; and volatility readings that remain below levels that would normally signal a bottom; and capital flows that signal that investors are still buying.
Meanwhile, widespread talk of capitulation creates a paradox in itself.
“If everyone is itching to enter the market at the bottom, this probably means that we are still far from a true capitulation,” he said.
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