Bulls vs. Bears – Bubble Brewing or Rally Building?

Bulls vs. Bears – Bubble Brewing or Rally Building?

In this week’s video insight I investigate signs that today’s bull market might show signs of a bubble. The Bulls point to two important observations that support the power of the markets. Firstly, the market width becomes greater – with more shares participating in the rally. And second, the winning momentum improves by more than 80 percent of American companies that see positive profit revisions.

Although these observations seem to be supportive on the surface, they can also be read as signs of a ripening bullmarkt that aims to a bubble.

Transcript:

We recently warned investors about the possibility that the ripening Bullmarkt, which started at the end of 2022, will show some signs of Morphing in a bubble. Anecdotic evidence includes several profitless companies that increase 300 percent, more than 60 American listed companies starting Bitcoin -Reserves strategies -reminiscent of the special purposes of the target -acquisition companies or “Spac” craze of 2020 and 2021 -raised by the 95 -destruction of the destruction of the destruction of the destruction of the destruction of the destruction of the debt of the destruction of the destruction of the destruction of the destruction of the destruction of the destruction of the destruction of the destruction of the destruction of the debt of the debt of the debt of the destruction of the debt of the destruction of the destruction of the debt of the debt of the debt of the debt of the debt of the debt of the debt of the debt of the debt of the destruction of the debt. to have. Failed, demonstrably could all point to bubble -like circumstances.

Maybe this is all big things and we should look a little better at other indications. If so, what do the bulls indicate, that justifies the opinion that the market must continue to rise?

Well, the first observation is that the ‘width’ of the market (the number of shares of the company participating in the rally) increases. Market decreases tend to (but not always) follow a period of decreasing width. And the reverse now takes place. More shares participate in the rally. However, this indicator does not increase a reliable purchase signal. It is more reliable to add to your investments in shares when the width is on the knees when the width indicator is less than 25 percent. Be greedy if others are anxious.

The second evidence to which De Bulls points out is that more than 80 percent of American companies revise positive income. With more than 95 percent of the S&P 500 companies that reported their results in the second quarter, the company America has defeated expectations. The S&P 500 had a relatively low bar to be expected from only 4.9 percent profit growth for the quarter, but the largest 500 companies in America follow to 11 percent growth on an annual basis than double the level expected at the start of the profit season on 1 July.

Another pointer for the bulls is the emerging strength in shares of microcap, border and emerging market. They generally have lower levels of liquidity and higher volatility, and that has been kept offside for several years … But now it seems that confidence is returning.

But because you have probably already noticed that some of these indicators can be claimed as easily as signs of the late stage of the Market Boom.

Every bubble in modern market history is based on a thematic or a story. In the past the internet or real estate is. Whatever it is, investors and proponents see it as a source of unlimited profit growth. That theme today is undoubtedly AI technology. But this time ratings are not that extreme. Of course p/es are high, but they are not as high as during bubbles in the past. And this time many of the AI ​​leaders also generate billions in every three -month turnover. This is not a dapourware.

And what about volatility? There is little doubt, with Trump at the helm, we can expect that the unexpected between now and 2028 – and perhaps beyond. More immediately as you can see in this graph, the VIX tends to rise between now and November. Not always but usually.

As always, we will only know if this is a bubble on the other side. Some of you will subscribe to the opinion that it is better to be six months early than six minutes late. If you are, you only have to balance your planned portfolio and bring your weightings over activa classes back to their original weights. For some, it is enough that Warren Buffett holds cash and for others … Well, they are just happy that they earn 7-9 percent a year from private credit funds without any exposure to public markets.

My opinion is that if you have a framework and a process for investments, it doesn’t matter what you think the market will do. Your investment strategy and process – bound as they are with your risk tolerance and financial personality – will help you navigate what the markets or Donald Trump serve.