US: stocks Sink As All Eyes Are On Consumer Price Data In The US

US Stocks Rally $5 Trillion – A New Bull Cycle Or A Mirage? Divergent Views Among Wall Street Strategists

Across the market, gains spread from meme stocks to tech bellwethers, with breadth indicators flashing bullish signals across the board.

Bloomberg: The $5 trillion rally in US stocks: is this the beginning of a new bull cycle, or is it just another mirage? Even professional forecasters at the same company are unable to agree on the evidence because it is so divergent.

With the most-scrutinized economic report in the history of the world about to be released, the stakes are sky high.

Rich Ross, the head of technical analysis at Evercore ISI, has just declared the 2022 bear market has ended, citing everything from chart patterns, to peak inflation, to investor sentiment as evidence of the end of the 2022 bear market.

According to him, the next 500 points on the S&P 500 will be higher than the previous 500 points.

Julian Emanuel, the firm’s chief equity and quantitative strategist, is less sanguine about the situation.

US Stocks Rally $5 Trillion – A New Bull Cycle Or A Mirage? Divergent Views Among Wall Street Strategists

As long as the benchmark index does not break above 4,340 – which has been its average over the past 200 days – the market is still vulnerable to fresh lows amid lingering economic and policy risks.

It is key to remember that the direction of the economy depends on what happens with inflation – a data point that no one has been able to predict accurately since the Federal Reserve rushed to save the economy from the pandemic shutdown.

The latest reading for the consumer price index will be released on Wednesday during a period when markets have never been more confusing, as investors try to understand the impact of central bank policy on the economy and analysts continue to deliver a wide range of forecasts.

During an interview, he said that he does not intend to draw attention to the differences between the two parties, although they are, of course, real.

In June, the overall mood among clients was one of bearishness, and even to the end of July, the overriding emotion was one of confusion.

The stock market slipped for the fourth consecutive day, with the latest decline following another downbeat outlook from a giant chip manufacturer earlier in the day.

There was a 0.4% drop in the S&P 500 index to 4,122 points. There was a 1.1% decline in the Nasdaq 100 index.

There is a wide range of opinions on Wall Street which can be seen in the diverging views at Evercore. According to the latest Bloomberg survey of stock market strategists, the highest year-end target points to a gain of 24% for the S&P 500 from Tuesday’s close, while the lowest forecast calls for a drop of 18%. It is one of the widest gaps in history.

There is a murky backdrop ahead of the release of the inflation data, an event that has not been kind to stock investors this year.

There has been a fall in the S&P 500 every time it has been released as consumer prices have generally been higher than expected each time it has been released.

As per a Bloomberg survey of economists, the CPI probably rose at an annualized rate of 8.7% in July, based on a survey of economists published by Bloomberg.

Even though that’s down from the high of 9.1% in June, it’s still way above the Fed’s 2% inflation target, which is a four-decade high.

According to Brian Nick, chief investment strategist at Nuveen, if inflation remains to be a big problem in September, October, November, and December, the markets are likely to be lower than they are today.

There is no doubt in my mind that the Fed is determined to get inflation under control.”

As of this week, stocks have enjoyed a stretch of gains that lifted the S&P 500 13% from its June low and propelled the Nasdaq 100 to the brink of a 20% increase from its June low.

As a result of better-than-expected corporate earnings and economic data that eased recession fears, the market rebounded.

Gains spread across all sectors of the market, from meme stocks to tech bellwethers, with breadth indicators flashing bullish signals across the board.

Levels that were resistant just a few weeks ago have now turned into levels of support.

Evercore’s Ross believes that improving chart patterns, signs of easing inflation, and “uniformly bearish” positioning among institutional investors are all indicators that the equity route may be coming to an end soon.

As he noted in a note he sent out Monday, “the biggest moves tend to happen at turning points, and prices get better before the headlines and fundamentals improve,” he said. I believe that a cyclical bull market has begun, which is likely to result in a breakout to a marginal new high in the near future.

As a result of the swift market recovery, some rule-based quant traders have been forced to close their bearish wagers, thereby adding fuel to the equity gains. In general, caution is the order of the day.

In a client survey conducted last week by Wolfe Research during a webcast, 75% of those who participated in the survey said that the S&P 500 has yet to reach a bottom and is likely to do so this year.

Wolfe’s chief investment strategist, Chris Senyek, shares this skepticism as well. In his opinion, investors betting on the Fed to remain friendly are bound to face a moment when they realize the central bank will keep monetary policy tighter for a longer period of time than expected.

Even though earnings turned out to be better than expected, a downgrade cycle is underway, which makes what looks like reasonable valuations more difficult to justify at a time when interest rates are on the rise as well.

“This has been a bear-market rally, not the start of a new bull market,” Senyek explained.

As cloudy as the fundamentals are, the vigor of this rally is starting to resemble past bull markets despite the fact that the fundamentals are unclear.

It is noteworthy that, as of Friday, the S&P 500 retraced more than one-third of its peak-to-trough decline over 34 days with double-digit gains – a feat that has only been achieved 13 other times during the last 70 years.

It is worth noting that all of those instances, with the exception of three, occurred during bull cycles, according to the data compiled by Sundial Capital Research and Bloomberg LP.

One year later, all but one of these stocks were higher than they were 12 months earlier.

“It’s less likely to fail if there is an impressive retracement,” says Jason Goepfert, Sundial’s chief research officer. There is probably more to this rally than just a bear market rally.

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