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The Bullish Case for the Stock Market

December 01, 2023

Earnings have bottomed while inflation/interest rates have peaked: The bullish case for the stock market …

 Follow the investable fundamentals rather than the “talking heads” and hedge fund manipulators on CBNC and you’ll have a better retirement. 

 Here is the bullish case for the stock market:

CHART 1– Clear trend line support for the S&P 500

Long term investors and NOT short-term traders are collectively pricing the market correctly.  This collective wisdom is balancing corporate earnings and interest rates to determine the value of the stock market and stocks.  Chart 1 clearly indicates that long term investors have digested the pandemic, recession and inflation’s negative impact on corporate earnings and interest rates in determining prices.  These problems are behind us, and I expect the market to breakout to new highs despite the constant negativity on CNBC (please repeat to yourself that CNBC is here to sell advertisements and not to guide you to your retirement).

CHART 2 - Corporate profits have bottomed and will accelerate.

It is no coincidence that the market took off this summer as long-term investors waited for the corporate earnings to bottom on a year over year growth basis as shown in Chart 2. 

This rally then stalled as hedge funds and Masters of the Universe then shorted the US Treasuries as can be seen in Chart 3, after which they gave “free content” to CNBC to drive-up long-term Treasury rates to make profits from their short positions.  CNBC gladly took the free interviews from the Masters of the Universe to the detriments of their viewers (yes, I am not a fan of CNBC).

CHART 3 - Rise in long term rates fueled by short term traders.

One Master of the Universe covered his short bet on the 10 Year Treasury as it hit near 5% and gave another free interview on CNBC.  This then caused “wanna be” Masters of the Universe to cover their short Treasury “bets” and long-term rates dropped (Chart 4).

CHART 4 - The end of cheap money but rates have peaked as inflation has peaked.

CHART 5 - China exporting deflation.

Central bankers are comprised of mostly academics who don’t have real life work experience.  They are data dependent as they don’t know how things work, which makes them “lagging indicators” as they wait for last month’s inflation numbers to determine their interest rate policies.  CEO’s of major companies like Walmart and Home Depot are leading indicators as they make business decisions that look into the future.  Both managements of Walmart and Home Depot are telling investors that inflation is behind us as China, their biggest source of products, have too much capacity and is now exporting deflation (see Chart 5).  The inflation data will drop like a stone and then the central bankers will take their victory lap on defeating inflation by cutting rates.  After turning off CNBC, don’t ever hire a former central banker to manage your money.

Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.