Chart Kid Matt published an excellent post last week listing: 10 reasons to be bullish.
Each reason is added to a chart. I won’t spoil the entire article (you should read it) but this tells the biggest story in my opinion:
Earnings growth is accelerating. Margins are still high. Bull market is expanding in terms of leadership. The fundamentals of the stock market are screaming bullish right now, which is why stocks are moving higher.
But I’m also a proponent of looking at both sides of the market, because it’s important to understand where any market narrative might be wrong.
Markets are nothing if not cyclical.
When it comes to considering future market outcomes, there is no certainty, only a range of possibilities.
So let’s play devil’s advocate and look at 10 reasons to be bearish:
1. Most hyperscaler capex is circular. This year’s chart could be:
Free cash flow from hyperscaler stocks is collapsing. These cash flows are transferred to semiconductor companies for the construction of artificial intelligence.
There’s no way this can go on… right?
What if that’s all?
What if investment capital slows down?
What if investments from outside tech companies don’t come soon enough?
2. Mag 7 underperforms. The good news is that market leadership is expanding into different segments of stocks.
The bad news is that Mag 7 shares are struggling and still account for roughly a third of the S&P 500.
All Mag 7 stocks except Apple are down double digits from their highs:
If these stocks completely fall out of bed, this will ultimately impact the overall market.
3. Artificial intelligence is bleeding into the economy. Michael Harpsichord There are some graphs showing the impact of artificial intelligence on the economy:
The slowdown of artificial intelligence could actually lead to an economic slowdown. This isn’t just a stock market story.
4. Retail is all inclusive. Accordingly Kale Securities Retail investors are deploying capital at a record pace:
Retail investors are all-in on IPOs, options, futures, leveraged ETFs and stocks.
5. Inflation remains high. Iran war increased inflation above 4 percent:
Our hope is that this is a temporary rise, but sticky inflation is a headwind for the economy.
6. Mortgage rates are still high. Higher inflation means higher interest rates. 30-year fixed-rate mortgage is still close to 7%:
Housing makes up a large part of the economy. Some said housing like that economy.
The housing recession isn’t a big deal yet. How long can this last before any real damage occurs?
7. Indifference. The S&P 500 is up 10% in the first six months of this year.
This follows gains of 18%, 25% and 26% in 2025, 2024 and 2023, respectively.
It is quite possible that stability will lead to instability, and we are preparing ourselves for this. minsky moment.
8. Artificial intelligence controls all bubble boxes. Artificial intelligence checks all the bubble boxes.
Technological revolution? Control.
Capex craze? Control.
Is there a bull market in stocks? Control.
Is there leverage in the system? Control.
Is FOMO kicking in? Control.
Retail speculation? Control.
Definitely feels could be something like this bubble or turning into one.
9. We are about to enter an economic recession. There was a two-month recession in the spring of 2020 due to Covid. This isn’t a real recession because the government spent so much money on this problem.
This was not a real economic cycle. It was man-made and immediately supported.
That makes it 17 years since the last real recession in America:
Have we outlawed economic recession?
We are likely to experience a slowdown.
10. The feedback has been very good. From the 2022 bear market bottom, the S&P 500 is up about 24% on a yearly basis:
The S&P is up 23% on the year from late March 2020 Covid lows.
Are these returns cherry-picked from the lowest? Certainly! But the bull market this decade was spectacular.
Sometimes the biggest reason stocks fall is because they rose too much in the first place.
Do you believe in bullish indicators?
Or bearish indicators?
That’s the trillion dollar question.
Michael and I talk about the reasons for bullishness, bearishness, and much more in this week’s Animal Spirits video:
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Further Reading:
Tops and Bottoms
Now here’s what I’ve been reading lately:
Books:
