Bull Or Bear Market? The Battle Begins.

Inside This Week’s Bull Bear Report

• Bull or Bear Market
• The Bullish Case
• The Bearish Case
• How We Are Trading It
• Research Report – Why Long-Term Returns Are Unsustainable
• Stock Of The Week
• Daily Commentary Bits
• Market Statistics
• Stock Screens
• Portfolio Trades This Week

Bull Or Bear Market? Who Is Right?

Bull or bear market. As noted last week, the race to call the bottom is on.

“Despite the Fed hiking rates, shrinking their balance sheet, and inflation at 9%, much of the financial media and market gurus have determined that the bear market is over and a new bull market has started.”

However, as we will review this week, there is data supporting both bull or bear market arguments. The challenging part for investors will be navigating the markets safely over the next few months until the “tale is told.” Before we get to the bull or bear market analysis, let’s review the action from the past week.

While the markets were consolidating recent gains over the last week or so, the weaker-than-expected CPI print on Wednesday, as expected, sent stocks surging. While the print came in softer than expected, the annual inflation rate remains very high, keeping the Fed focused on the “inflation fight” for now. Notably, the high inflation levels, which won’t come down quickly, will eat into corporate profit margins over time, leading companies to take on more defensive tactics to maintain profitability.

Ira Jersey, via Bloomberg, had one of the most relevant statements regarding inflation:

“Our analysis shows that the lower-volatility (read sticky) components of core CPI may have peaked in July, but the medium-volatility sector continues to jump higher. If the low-volatility cluster stabilizes at this higher level, these combined trends may keep core CPI underpinned and the Fed hawkish…. The better-than-expected core CPI print will be a strong positive for the Treasury market, particularly the long end, so the knee-jerk reaction is unsurprising. The strong steepening of the curve may not last, however, as the better-than-expected core still doesn’t mean it will fall. In fact, although better than expected, the core may be sticker than the market seems to be anticipating.”

However, in the short-term, the softer CPI reading emboldened the bulls on hopes the Fed may be closer to the end of its rate hiking campaign, potentially paving the way for future cuts. There is a bullish bias to the market, with sentiment improving sharply in recent weeks. With the market clearing the 100-dma and the 20-dma crossing above the 50-dma, precise short-term support levels will provide better entry points for increasing trading positions. While the market is pushing a rather extreme deviation above the 50-dma, the 200-dma is acting as a magnet for investors, which will likely be achieved next week.

However, the question that we will debate today is the longer-term bull or bear market view.

The Bullish Case

Much of the bullish case is predicated on the hope the Federal…