Between Bear and Taurus | markets shares

Not much more is needed. The tech-heavy Nasdaq Composite needs to gain just 1.1% from Wednesday’s close to be back in a bull market and gain 20% from its mid-June low. The gap in the S&P 500 is still 6.7%. But the market-wide U.S. stock index was also able to rally significantly thanks to its strongest July in 83 years.

Is this the turning point? Does the upside herald the end of the bear market? It is not out of the question. Longtime market watcher and founder of Yardeni Research, Ed Yardeni, wrote earlier this week that the S&P 500 “may have bottomed” on June 16. Although still in the subjunctive. At least. To find out how solid the foundations of the ongoing rally are, it pays to do a stock market health check.


The rating doesn’t help much with the timing. So if you want to know if a bear market is ending, you shouldn’t use the price-to-earnings (P/E) ratio as a guide. However, the evaluation is useful when estimating the potential. A low valued market can appreciate longer before becoming overvalued than a highly valued one. Measured by the forward S&P 500 median price-to-earnings ratio of 16, US stocks are ranked at their pre-pandemic median. This means that the market is neither cheap nor expensive, but rather fairly valued. Still, it should be added that analysts have only just begun revising their earnings estimates due to the economic slowdown. If they lower profit expectations, the forward P/E rises. This is neutral for the market.

company profits

Less bad than feared – that’s the preliminary conclusion of the second quarter reporting season. According to analysts at Deutsche Bank, the companies in the S&P 500 have so far had earnings growth of 9.4% compared to the same period last year. According to Deutsche Bank, however, three factors distort the picture. These include the strength of the energy sector – without which earnings would fall – the return to profitability of companies hit hard by the pandemic and provisions for losses from banks. Excluding these factors, earnings rose 1.2% year-over-year. Compared to the previous quarter, it is even a drop of 4.5 per cent. This is negative for the market.


Anyone who calculates the value of a stock is summing up the present value of future distributions. The more dividends paid and shares repurchased, the higher the value of the stock. For several quarters, companies in the S&P 500 have returned increasing amounts of cash to shareholders and have also exceeded pre-pandemic levels. Measured in terms of the operating result, the potential is far from exhausted. This is a support for the stock market.

Economic growth

The economic picture is confusing. According to the preliminary figures, the US shows negative growth for the second quarter in a row – which corresponds to the technical definition of recession. At the same time, however, hundreds of thousands of jobs are created every month. In a recession, this is usually not the case. Although indicators such as the inverted yield curve or the purchasing managers’ index in the euro area point to an economic slowdown, the economy is proving to be more robust than feared. The less bad economic data in July was also a reason for the rise in the stock market. This is neutral for the market.

market trend

There is hardly any stock market wisdom that makes more sense than “the trend is your friend”. If prices rise, investors should invest. If, on the other hand, they sink, you have to get out. But when is a trend a trend? According to analysts at research house Ned Davis Research, the long-term downtrend for the S&P 500 is intact despite the recent upward movement – ​​albeit only just. However, if prices continue to rise, the trend should soon be in neutral territory. It is not negative for the market either.

the breadth of the market

There is good news and bad news about market breadth. First the bad. On the New York Stock Exchange, only three out of ten stocks trade above their 200-day moving average. It is a little. But now the good news: A few weeks ago it was only two out of ten. In their market breadth analysis, the analysts at NDR conclude that the current upward movement is more like an early phase of a cyclical bull market than a bear market rally. However, it has not yet been decided. However, the width has clearly improved significantly. This is no longer negative for the market, but neutral.

investor sentiment

Market sentiment has brightened thanks to rising prices. But she is not optimistic. Citi’s Levkovich indicator – which takes into account the proportion of short sales, the amount of margin debt and the put-call ratio, among other things – is still right in neutral territory at -0.14. According to Citi, the current level implies a 90% chance of a positive return over the next 12 months. This is neutral for the market.


Over the past few weeks, investors have slightly increased their exposure to stocks. According to Deutsche Bank, this is due to both systematic investors who, for example, act with trend-following strategies or a risk parity approach, and investors who are invested in classic equity funds. Bank of America confirms this. Money has flowed from their clients into stocks for five weeks. According to Deutsche Bank, the exposure is different. Over the past 12 years, systematic investors have only been weaker in stocks during the 2011 euro crisis and the start of the 2020 pandemic. Traditional investors, meanwhile, have about as much exposure as the average. According to Deutsche Bank, however, the consolidated positioning is unusually low. When investors increase their exposure to stocks, it is positive for the market.

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