This is what bull and bear leaders say when markets stall

The stock market has almost stalled this week. The S&P 500 200-day moving average has seemingly transformed from magnet to resistance. It’s summer: NYSE Composite volume was the lowest of the year on Thursday, according to Dow Jones data.

Still, bulls need not complain, the Wall Street benchmark is just shy of a four-month high after bouncing 16.8% from the mid-June low.

The rally, we are told, has been fueled by hopes that peak US inflation could help the Fed be softer in its monetary punishments. It has also been buoyed by a generally well-received second-quarter earnings season for the company. Oh, and the drop in oil prices too.

This week’s consolidation feels as if the bulls and bears have struggled for balance. So let’s quickly look at an example of each; the first focused on fundamentals, the second more technically inclined.

Ultimately, it is corporate earnings, and the multiple applied to them, that should determine the path of the stock. By midweek, companies that make up 95% of the S&P 500 market capitalization had reported, says Julian Emanuel, a strategist at Evercore ISI. Both earnings and sales growth beat forecasts.

That no doubt helped underpin the summer stock rally as “headline and final results topped a sentiment bar low in the quarter.”

Unfortunately, there may be problems later on. Emanuel believes slowing global economic growth means earnings per share estimates for the next 12 months have peaked. They forecast an S&P 500 EPS of $232, compared to the current consensus of $244.

“A ‘speed bump’ in earnings sets the stage for renewed market volatility, as was seen even in non-recession years like 2015, when China’s weakness was the prevailing headwind globally, and in particular at address the typical [negative] autumnal seasonality”, warns Emanuel.

Source: Evercore ISI

Fundstrat’s Tom Lee, meanwhile, is typically bullish. Among a number of positive factors he uses to counter bearish concern in his latest note is the rebuttal of the view that the market may be vulnerable because it never experienced a “capitulation.”

The chart below shows the percentage of S&P 500 stocks that were more than 20% below their 52-week high at various times since 1995—in other words, stocks in their own bear market. Lee notes that the figure rose to 73% on June 17 of this year.

Source: Fundstrat

“This has only been exceeded three times in the last 30 years. Each of the three cases above was the bottom of the market. We believe this is the fourth instance.” he writes.

“And stocks have the best forward returns when this number is over 54%, as shown below: In 3M, 6M and 12M, the best decile for returns is when this number is more than 54% oversold, so So buy the drop regimen.” Lee concludes.

markets

A tone of risk aversion enveloped the markets. S&P 500 Futures ES00,
-0.63%
fell 0.8% to 4,254 and WTI CL.1 crude,
+0.39%
it fell 1.1% to $89.52 a barrel. However, there was no problem with the perceived safety of US government bonds, as concerns about inflation persisted. The 10-year Treasury yield TMUBMUSD10Y,
2.973%
it rose 4.8 points to 2.928%. GC00 gold,
-0.17%
it fell 0.3% to $1,767 an ounce.

The buzz

About $2 trillion in options will expire on Friday, including $975 billion in contracts linked to the S&P 500 and $430 billion linked to individual stocks, according to Bloomberg. The meager summer trading may make this hard for Wall Street to digest.

Shares in Bed Bath & Beyond BBBY,
-39.41%
are down another 40% or so in pre-market action after it was confirmed Thursday night that the investor Ryan Cohen had gotten rid of all his participation at the struggling retailer.

fl Foot Locker,
+24.46%
shares jumped 19% after the sports retailer said Mary Dillon would replace Richard Johnson as chief executive in early September, while Deere shares DE,
-2.78%
they are down 5.8% after the tractor maker lost profit.

A tough day for crypto too. With no apparent new catalyst, Bitcoin BTCUSD,
-8.29%
is falling 7.3% to $21,706 and Ethereum ETHUSD,
-9.96%
it is discounted 7.5% to $1,737.

Maximum inflation? Not at the factory gate in Germany. Data released on Friday showed producer prices in the world’s fourth largest economy rose to a record 37.2% for the year through July, compared with 32.7% in June, as rising energy costs took their toll.

UK consumer confidence hit an all-time low, helping boost GBPUSD,
-0.85%
below $1.19. In fact, concerns about the European economy cause the dollar to revisit parity with the euro EURUSD,
-0.31%
and the DXY dollar index,
+0.46%
it rose 0.2% to 107.19, near a 20-year high.

Oh! Indonesia says Xi and Putin will attend the G20 summit in Bali in November.

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The graphic

The market appears to be enduring another bout of meme stock mania. stories about 20-year-olds quickly earn $110 million in corporate fighters like Bed Bath & Beyond BBBY,
-39.41%
they are so hot right now. So, as a public service announcement, and with an emphasis that the following should NOT be taken as investment advice, here is a chart released this week by S&P Global Market Intelligence showing the shortest companies in the US.

The best tickers

Here were the most active stock tickers on MarketWatch at 6 am ET.

Heart

security name

BBBY,
-39.41%

Bed bath and beyond

gme,
-6.48%

gamestop

AMC,
-4.92%

AMC Entertainment

TSLA,
-2.12%

Tesla

BBY,
-2.10%

Best Buy

AAPL,
-0.66%

Apple

GREAT,
-17.24%

vinco companies

LITTLE BOY,
-2.76%

LITTLE BOY

AMZN,
-1.84%

amazon.com

ENDP,
+4.46%

international endo

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