Reasons to Still Believe In This New Bull Market
The bear market is over. That’s without question. But investors aren’t feeling all warm and fuzzy about the new bull market. The past several weeks might have produced record-breaking heat in terms of climate temperature, but stocks have cooled off quite a bit with both the S&P 500 index and the Nasdaq Composite suffering losses in two straight weeks.
Market focus has centered on the economy's trajectory and the Federal Reserve's role in managing inflation to prevent a recession. The July Consumer Price Index (CPI) came in softer than anticipated, with a year-over-year increase of 3.2%, below the estimated 3.3%. However, the producer price index (PPI), which tracks wholesale prices for raw goods, exceeded expectations with a 0.3% month-over-month increase.
This has led to speculation that the Federal Reserve might reconsider its potential pause in rate hikes for September. Some investors are now questioning whether it’s time to pull money out of the market. For the week, the Nasdaq was down 1.90%, while the S&P 500 was down 0.31%. The Dow, on the other hand, showed resilience, rising 0.54% for the week. Despite the uncertainty, there are indications that the market's underlying optimism is intact.
While expectations of a Fed pivot have been dampened due to recent inflation data indicating that more action might be required to control costs, don’t discount the fact that we have reached "peak inflation.” We are now on the other side, despite the seemingly mixed stock performance and uncertainty in the markets have shown over the past few weeks. To be sure, as we look ahead, certain stocks are poised for scrutiny, and the market's trajectory will be closely monitored.
The strong first half gains were driven by the technology behemoths such as tech heavyweights Nvidia (NVDA), Apple (AAPL), Amazon (AMZN), Netflix (NFLX), Meta Platforms (META), Tesla (TSLA) and Microsoft (MSFT). But while the second half of the year has gotten off to a rocky start, it's not time to panic. there are several reasons to believe that the new bull market will endure. Despite periodic pullbacks and volatility, there is still a sense of optimism, supported by factors such as strong Q2 earnings results and the remarkable performance of AI stocks.
On a year-to-date basis, the gains are still encouraging, compared to the depths of the bear market. The Dow Jones Industrial Average is up 6.5%, while the S&P 500 is up 16.73% year to date. The Nasdaq is still the largest gainer, rising 31.36% year to date, compared with a 2022 decline of 34%. In other words, despite the downbeat performance over the past few weeks, the bulls are still firmly in control of this market.
This collective optimism should prevail, given the strong Q2 earnings results and confident guidance that S&P 500 companies have provided thus far. Arguably, it was Nvidia’s blowout first quarter earnings results and better-than-expected Q2 guidance that sparked the massive rally the Nasdaq has enjoyed this year, outpacing the S&P 500 and Dow Jones Industrial Average so far in 2023. Nvidia, which has soared 185% this year, will report Q2 result next week, on August 23. Does it have a second act for the second half? I would not bet against it.
All told, while the recent market dynamics have been influenced by inflation concerns and the Federal Reserve's decision not to cut interest rates, the overall sentiment and market trajectory remains positive. While implications of future inflation data will continue to shape market movements, there are tons of indications that the new bull market has the potential to withstand challenges and continue its upward climb. Combined with the fact that the recessionary risk is all but gone, this new bull market is likely here to stay.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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