Positive Developments Curb Stock Market Concerns

A new bull market launch? Nope. Too soon. Plus, this sharp rise has faulty characteristics. However, positive developments could carry this happy time through year-end. It’s the pleasant pause described here…

How the five developments are progressing…

Completed developments:

First – Company earnings reports (Oct. 30 through Nov. 10) – Positive so far

During these two weeks, 42% of the S&P 500 companies report earnings. The firms are well-diversified among economic sectors and industries.

The results from the first week (Oct. 30 through Nov. 3) showed a net positive result, judging by the companies’ stock performance.

Number of S&P 500 companies reporting last week = 160 (32%)

Weekly performance results…

Reporting companies…

• Average = 5.7%
• Median = 5.6%
• Market capitalization weighted = 5.5%

Second – Federal Reserve announcements (Nov. 1) – Positive

The Federal Reserve reassured investors by interest rate inaction. Also, the commentary included the possibility of one or none rate rises remaining. The uncertainty remains due to the Fed’s perpetual wait-and-see attitude regarding future economic and inflation data

Third – Bureau of Labor Statistics (BLS) Employment Situation Summary report (Nov. 2) – Positive

This important report confirmed the continuation of good employment conditions with “just right” growth and a minor uptick in unemployment.

Coming developments:

First (continued) – Company earnings reports (Nov. 6 through Nov. 10)

The companies reporting earnings next week benefitted from this week’s stock market rise. Here are their performance results…

Number of S&P 500 companies reporting next week = 52 (10%)

Weekly performance results…

Reporting companies…

• Average = 5.9%
• Median = 5.8%
• Market capitalization weighted = 6.0%

So, those stocks also bested the market. Could there be some improved earnings anticipation that boosted them? Next week should provide the answer.

Fourth – University of Michigan Consumer Sentiment report (Nov. 10)

These survey results are a widely followed measure of consumer sentiment, both for current and expected conditions. With the good retail sales and employment reports, expect this preliminary November report to be positive

Fifth – BLS Consumer Price Index (CPI) report (Nov. 14)

The key inflation data (particularly for the “core CPI” that excludes food and especially variable energy prices) will likely show a trailing 12-month number for October that is similar to September

The bottom line – Enjoy this period, but don’t presume it’s a new bull market

Last week’s broad rise partially relieves the previous “10% correction” and “stock market crash” concerns. If next week also delivers good news, that relief will increase. With the holiday season approaching, good feelings could extend through year-end. That possibility brings up two items to remember:

First, the negatives that produced the 3-month selloff remain. While some might be cured or become irrelevant later, don’t take their absence in media reports as a sign that they are gone for good.

Second, the stock market’s selloff/reversal actions look deficient. There was no selloff bottom activity, and the runup has old fads rising quickly. That combination of dead-cat bounces and the past-favorite reruns is a strong indication of another market selloff ahead.

In other words, these current, positive days are a welcome pause. However, by January 2024, reality will likely have returned. Therefore, it’s seems okay to speculate on short-term ideas, so long as sell orders are kept on short fuses.