Why Are So Many People Feeling Bullish?

NYSE: SPY | SPDR S&P 500 ETF Trust News, Ratings, and Charts

SPY – So, here’s something I’ve found myself wondering lately about the stock market (SPY)…maybe you’ve wondered the same thing. The fundamentals are still mostly negative. Less negative than we thought… but still negative. So why are so many people feeling bullish? Read on to find out the answer…

(Please enjoy this updated version of my weekly commentary originally published January 24th, 2023 from the POWR Growth newsletter).

As I wrote in last week’s commentary, the stock market (SPY) is a complicated place to be right now.

There are a handful of potentially positive signs (the recent rally, some important earnings surprises, softening inflation numbers), but there are also still a number of potentially negative signs (more big layoff announcements, some key earnings misses, a hawkish Fed).

If you look at the broad market indexes, the bulls appear to be winning this tug-of-war game.

And I think that’s because they’ve convinced themselves that the negative has already been priced into stocks.

And as much as I want to be optimistic (and I can’t ignore those green shoots!)… that’s a dangerous place to be investing from.

If this rally is based on the assumption that the negative is already priced in, then…

1) We’ll need some other positive news if we want stocks to continue higher.
2) Everyone is in for a very unpleasant surprise if it turns out the negative wasn’t priced in.

In that second scenario, we’d likely see two waves of selling — one selloff driven by some kind of negative news and a second wave of sellers selling because they were spooked by the first wave of sellers.

“Almost any pin can prick such supreme confidence and cause the first quick and severe decline,” wrote Jeremy Grantham, the co-founder and long-term investment strategist of GMO. “They are just accidents waiting to happen, the very opposite of unexpected.”

Now, Grantham is one of Wall Street’s best-known bears. If anything, it might be more alarming if he wasn’t calling for a severe decline. But his message rings true to me.

They are just accidents waiting to happen.

If we want the bullish atmosphere to stay alive, the next two weeks will be especially important to get through accident-free.

First of all, we must navigate earnings season, which we are already in the middle of. This season was loaded from the beginning, with many watching it for evidence that a recession is looming.

In the run up to the first reports, many companies revised their own guidance for the quarter lower. Of the 101 companies in the S&P 500 (SPY) had issued guidance for Q4 2022, 67 had issued negative EPS guidance. That’s more than usual based on both the five-year and 10-year average.

We’re also seeing lower profit margins for the quarter, which could be a bad sign if costs continue to rise faster than sales, which has been a recent trend. And inventory bloat has proven to be an existing problem for certain retailers, like Nike and Nordstrom.

On top of that, a number of companies are issuing negative guidance and outlooks for the upcoming first quarter.

Then, at the beginning of February, we’ll have our next update from the Federal Reserve. Currently, markets are pricing in a 99.1% chance of a 25-basis point hike.

Now, I’m not saying we WON’T get a 25-basis point hike… but that is a perfect example of the pin that could pop the optimism bubble.

Or!

We could easily thread the needle through all of these potential pitfalls like some kind of financially-inclined Mr. Magoo.

Conclusion

I’ll be watching earnings closely… as will the rest of the market. If companies continue to beat estimates or at least deliver more positive forward guidance than investors are expecting, we should be able to sidestep any potential bubble-popping pins. Then, we’ll be on to the next Fed meeting.

What To Do Next?

See my top stocks for today’s market inside the POWR Growth portfolio.

This exclusive portfolio gets most of its fresh picks from our proven “Top 10 Growth Stocks” strategy which has produced stellar average annual returns of +46.85%.

And yes, it continues to outperform by a wide margin even during this rough and tumble bear market cycle.

If you would like to see the current portfolio of growth stocks, and be alerted to our next timely trades, then consider starting a 30 day trial by clicking the link below.

About POWR Growth newsletter & 30 Day Trial

All the Best!

 

 

 

Meredith Margrave
Chief Growth Strategist, StockNews
Editor, POWR Growth Newsletter

Want More Great Investing Ideas?

3 Stocks to DOUBLE This Year


SPY shares were trading at $399.52 per share on Wednesday afternoon, down $0.68 (-0.17%). Year-to-date, SPY has gained 4.47%, versus a % rise in the benchmark S&P 500 index during the same period.


About the Author: Meredith Margrave


Meredith Margrave has been a noted financial expert and market commentator for the past two decades. She is currently the Editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Meredith's background, along with links to her most recent articles. More...


More Resources for the Stocks in this Article

TickerPOWR RatingIndustry RankRank in Industry
SPYGet RatingGet RatingGet Rating
.INXGet RatingGet RatingGet Rating
DIAGet RatingGet RatingGet Rating
IWMGet RatingGet RatingGet Rating
QQQGet RatingGet RatingGet Rating

Most Popular Stories on StockNews.com


Investors: Are You Ready for November?

The S&P 500 (SPY) tumbled to end October. Is that a harbinger of more downside to come? Or will the bull market return with gusto? Investment pro Steve Reitmeister shares his time market views including a preview of his favorite stocks. Get the full story below...

3 Cybersecurity Stocks Defending Against Digital Threats

The demand for cybersecurity solutions is rising as digital threats and sophisticated cyberattacks continue to escalate. Therefore, it might be wise to keep track of cybersecurity stocks, CrowdStrike (CRWD), Palo Alto Networks (PANW), and Fortinet (FTNT), as they offer innovative solutions presenting further growth opportunities. Continue reading...

3 Oil Stocks With High Upside as Global Demand Rebounds

The outlook for oil demand growth appears promising despite economic uncertainties and worldwide supply deficit. Amid this, investing in quality oil stocks Enterprise Products Partners (EPD), Marathon Oil (MRO), and Plains All American Pipeline (PAA) could be ideal as global demand rebounds. Read more...

3 Tech Stocks Under $10 That Could Deliver Big Gains

The technology industry is booming, driven by breakthroughs and significant government investments. Thus, incorporating affordable tech stocks, Sprinklr (CXM), Sabre Corporation (SABR), and Cricut (CRCT) into your portfolio provides an accessible entry point to capitalize on the industry’s growth. Read more…

2 Concerns for Investors in October

The S&P 500 (SPY) may be touching all time highs...but recent action points to concerns on 2 fronts: inflation and earnings. Investment veteran Steve Reitmeister shares his views on these 2 timely topics along with a preview of his top stocks to buy now.

Read More Stories

More SPDR S&P 500 ETF Trust (SPY) News View All

Event/Date Symbol News Detail Start Price End Price Change POWR Rating
Loading, please wait...
View All SPY News