The bull market has now ended? The bubble have burst, 1929 recession??
I am definitely not in that camp.
I always look at the facts. Dont just go blindly into believing something, and THE FACTS SAY WE ARE NOT IN BEAR MARKET
I will analyse this in GLOBAL SCALE
Fact 1:
A bear market is defined when S &P closes 20% below the high, which is about 3853.75. Did we close 20% below the high? No we did not, we flirted with that level because the S&P almost went to 20%, and came back up, then went below 20% flirted with that level and trapped the bears and closed back up. So it never close below 20%, this isn't a bear market.(at least not yet )
What would cause a market to really go into a bear market? Well what has to happen is that companies earnings will have to decline. A lot of people are saying that the market today is gonna be like the year 2000.com crash or 2008 financial crisis, you can't say that until the facts prove otherwise, because remember during those two bear market recessions, what happend to corporate earnings?
Below chart is operating earnings per share, we can see they went negative in year 2000.com crash and 2008 financial crisis, same thing with 2020 when covid hit, it went negative as well. So as of right now, are we operating earnings negative? NOT YET. Could it? Maybe but not yet . SO until it happens we should not jump the gun.
Fact 2:
Based on research done by Larry Williams that we are near to the peak of inflation based on inflation cycle forecast as per below chart. We are coming to that peak which is somewhere in June which is where we are at right now. And the moment inflation peaks and comes down what tends to happen? It tends to coincide with market bottoms. As you can see from the chart, the black line is inflation, red line is market. Everytime inflation peaks, comes down, that is the market bottom (red line). So inflation peaking and coming down IS ONE OF THE BEST SIGNALS TO ENTER THE MARKET.
According to below chart I think inflation may have already peaked. For the first time in serval quarters, it looks like consumer inflation measured by CPI, CORE CPI , PCE...etc whatever measure it shows that its actually abating. IT IS COMING DOWN FOR FIRST TIME IN MANY MANY QUARTERS, so that is a very very bullish sign for the markets. So what has caused inflation to start coming down?
1. It has been the easing of supply chain restrictions from China as they start to find that okay they are getting Covid under control. They are reducing the lockdowns.
2. Demand destruction from higher prices. Now with higher prices on everything, people are starting to cut back on their spending, lowering their demand and that is causing inflation to come down
3. Excess inventory reported by Target or Walmart. When company show they have got excess inventory that means they couldn't sell as fast as they want shows that inflation could have peaked
4. Big corporation like Microsoft, Amazon...etc for the first time they are slowing their hiring in fact they are freezing their hiring and even cutting staff.
So this shows that it is gonna temper or bring down some of the wage base inflation pressures, which is the rise in wages is coming down as labor market get less tight and that is what the Fed wants to see once we see inflation kind of like getting subdued, the 10-year yield comes down, the market is going to RALLY really really strongly
Majority of people out there are giving all kinds of reasons to be bearish, but I am going to give you reasons why I am bullish.
The first reason is because S&P 500 is NOT YET IN A BEAR MARKET, ITS STILL IN A BULL MARKET. At same time after this correction we had in the last five to six months, THE MARKET IS NOT LONGER EXPENSIVE, in fact THE MARKET IS NOW GENERALLY UNDERVALUED based on the price earrings ratio of the S&P 500. You can see the 10 year average PE ratio is about 20 times earnings and the five year average PE ration is about 23 times earnings. Currently after the sell-off we are at roughly about 18times earning , so we are actually under value on a PE ration basis. So in other words the market is NOT EXPENSIVE ANYMORE, the market is generally cheap.
Conclusion :
We all know that within the current market now , there are many good businesses (RNU IS ONE OF THEM ) that are undervalued by 20, 30, 40 percent, that is why I have been consistently buying shares in this market so even it goes a bit lower I dont really care as long as you buy good companies that are undervalued you have done your job. You dont have to predict exactly when the market is going to go up this year or next year, good companies will always compound and grow in value and you will make money.
