Medicare Agent News: Where To Next?

Friday, August 26, 2022

Where To Next?

By Nicholas Jasinski | Friday, August 19

Which Is It? Stocks just interrupted a four-week winning streak, after sizable declines today put major indexes in the red for the week. The debate continues: Are we in a new bull market? Or is this just a bear market rally that will dissipate soon and lead to even lower lows?

Of late, there’s been more to be optimistic about. After its worst first half of a year in decades, the S&P 500 index has climbed 17% since mid June, while the Dow Jones Industrial Average is up 14% from its low. The Nasdaq Composite has rallied more than 20% in the past two months, putting it in a new bull market—despite a 2% decline today. Riskier and more speculative pockets of the market have led the recent rally, which has coincided with a decline in bond yields.

The extreme pessimism of the first half of 2022 seems a distant memory. War in Europe, runaway inflation, a coming collapse in corporate profits, a behind-the-curve Federal Reserve forced to push the economy into recession—you don’t hear about those nearly as much these days.

A string of solid employment and inflation data, better-than-feared second-quarter results, and a pullback in commodity prices are behind the shift. The positive catalysts have boosted investor sentiment: The Investors Intelligence Bull/Bear Ratio soared from 0.60 eight weeks ago to 1.64 this past week. That means that investors describing themselves as bullish are now far more numerous than the bears.

There’s lots of money on the sidelines that could soon find its way into the stock market. Longtime bull Marko Kolanovic, J.P. Morgan’s chief global markets strategist, has a year-end target of 4800 for the S&P 500—which is about 13.5% above today’s close and would be a record high.

“Given our core view that there will be no global recession and that inflation will ease, the variable that matters the most is positioning,” he wrote yesterday. “And positioning is still very low…it is now in the ~10th percentile.” That means that funds’ relative exposure to the stock market has only been lower in 10% of historical readings, according to Kolanovic.

Alongside corporate share buybacks, he expects to see daily inflows into equities of several billion dollars a day over the next few months.

Even the bulls concede that inflation is far from conquered, the Fed tightening cycle will continue, and economic growth is guaranteed to slow. But the pace and magnitude of each of those headwinds now doesn’t appear so dire. That’s a relative improvement, and it has the bulls pondering whether a soft landing for the economy can be achieved.

That’s far from a fait accompli—a lot still has to go right. Inflation remains an issue. The minutes from the July Fed meeting released Wednesday, plus speeches by a trio of Fed presidents this past week, uniformly signaled more hawkishness than is priced into the market

A Fed focused on vanquishing inflation could still out-hawk the market if the data don’t improve further, lifting bond yields and pushing down stocks. And the thorniest scenario remains plausible: still-high inflation combined with deteriorating economic activity and rising unemployment. Then the Fed would have to weigh its inflation fight against supporting a faltering economy.

Management teams have tended to offer ominous forecasts for the remainder of the year, even if second-quarter results were generally strong. Slowing profit growth in a suddenly not-particularly-cheap market alongside rising interest rates is a tough combination. The S&P 500’s forward price/earnings ratio has rebounded to almost 19 times, from about 15 times in June.

Overseas, the Chinese economy is shakily emerging from Covid-19 lockdowns while contending with a property-sector bust. Europe is in an energy crisis.

Overall, there’s plenty for both bulls and bears to point to bolster their case. But after a rapid rally fueled by good news and improving data, the near-term risk/reward now appears to favor the bears.

Watch our weekly TV show on Fox Business Saturday or Sunday at 10 a.m. or 11:30 a.m. ET. This week, Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, makes the case for small-cap stocks. Plus, more insights on investing in China, and a look at Walmart's move to go Hollywood.