The roar from bears has been getting louder, which begs us to ask if we are entering a bear market or not. My answer: no, we are not. There is no proof we are in a bear market.
Data points away from a bear market
Just last week I heard four warnings that a crash is coming despite evidence to the contrary. Data shows strong economic growth, strong earnings (now and for the next few quarters), more favorable corporate tax laws and fewer regulations. Interest rates are still very low, and the Fed is still in accommodation mode (though they are pulling back on it very slowly).
There is a good chance we will see 3% growth in 2018, exceeding the modest expectations of most economists and the Federal Reserve. Next year might be a different story, but let’s just worry about 2018 for now. The current situation is what we need to focus on, not what might be coming.
And yes, some day there will be a recession as we move through a normal “boom and bust” economic cycle, but we are not there yet. So why the uproar? I suspect people want to be the first to call it. How much upside are they missing out on as they wait for their prediction to come true?
Tariffs could cause a bear market
Let’s talk about the elephant in the room. Tariff trade winds are blowing in the direction of the bears. If enacted, tariffs will weigh down economic growth around the world, period.
So where does this leave us? Continue to let the charts and technicals be your guide. They show where the big money is flowing, and big money moves markets. Right now, the charts show a constructively positive pattern. Both the Russell 2K and Nasdaq hit all-time highs. How is that bearish? The SPX 500 and Dow Industrials are not flying as high, but they are making higher lows on their respective charts.
If we look at specific names, we see good news as well. Netflix and Google have enjoyed white hot price action this month. As we come upon the halfway point of 2018, look for more leaders to emerge and push markets higher for the rest of the year.
