The Problem With the Bull Case for 2023

[Trading With Larry Benedict]( The Problem With the Bull Case for 2023 By Eric Shamilov, analyst, Trading With Larry Benedict As of Wednesday, the Invesco QQQ Trust Series 1 (QQQ) is up 13.35%… the S&P 500 (SPY) is up 6.53%… and Dow Jones is up 3.63% so far this year. Aside from the outsized start to the year, the relative performance says it all… Investors haven’t looked back at the trends of 2022 but are looking forward to a bounce back in 2023. Last year, momentum strategies profited from a steady downtrend in both stocks and bonds… But this year, they had their worst performance since the lows back in March 2009. One of those momentum strategies was selling tech and buying value… In one month, tech has made up what it had lost over the past six months. Tesla (TSLA) may be a poster child for the voracious rally we have seen, rising 100% from its lows on January 6. But the prevailing bull case isn't citing the most concerning data point out there right now – that tech valuations are back to 2021 bubble levels. But before I call for a big market correction, it’s important to examine what the current bull case actually is… Recommended Link [What’s the No. 1 ticker for 2023?]( [image]( Millionaire investor Brad Thomas has discovered 500 of the fastest-growing companies in America in terms of revenue growth over the last 3 years, with growth starting around 200% and going all the way up to 87,037%. Even in the best years, gains like these have been almost unheard of, but Brad has identified 500 companies that are making money like crazy. All you need is this one ticker, and every time these companies make money, YOU make money. Today, tomorrow and for the rest of your life. [To learn more, watch his latest video here now.]( -- Making the Bull Case So where is all this bullishness coming from all of a sudden? Well, right now, the prevailing bull case is looking at a recently burgeoning credit market, which started to improve in October 2022. And they cite the tendency of stocks to follow… In addition, some interpretations of economic data show that the much-feared recession either already happened or will never happen at all. Maybe we can call it the Phantom Recession of 2023. These folks point to the index of the top 10 U.S. Leading Indicators. This was at its lows back in June with a reading of 10%. That meant only 10% of leading economic indicators were rising at the time, and 90% were not. Readings that low always coincided with a recession in the past. But now, that reading is at 40, meaning there’s been an improvement. And historically, when it rises from 10 to 40, it coincided with the economy coming out of recession… not heading into one. Bulls also attack the bears for citing the weakness in the “ISM” – like the ISM Manufacturing Index, which came in with a 46.8 reading recently. That was the lowest level since the height of the pandemic and is a comparable level to past recessions. The bulls’ counterpoint, of course, is that readings have gotten that low before with no recession. So they say it’s statistically insignificant. But the biggest reason for optimism that the bulls point to is the most obvious of all… The unemployment rate currently stands strong at 3.4% and has been moving downward. If you observe periods leading into recessions, that indicator would rise, not fall as it’s doing now. In fact, there have only been two instances where more than 500K jobs were created in one month… The first was coming out of the Credit Crisis. The second was last Friday. You just don’t see that in recessions. If the bulls have it right, then that means it’s blue skies up ahead and this market rally is just the beginning… Another classic case of asset prices discounting available information. [Wealth-Building Secret Hidden in List of The 500 Fastest Growing Companies in North America]( But here’s the thing about citing and poring over economic data… All that interpretation, whether for the bull case or against it, is all statistically insignificant. Reading into any economic data and trying to extrapolate forward can be hazardous to your wealth. What the Bulls Are Missing Firstly, we don’t truly have enough data points to make conclusive statistical decisions in either direction. And secondly, every era is different – and there’s nuance. We have a Fed that has raised rates from zero to 4.58% in record time… and it is well on its way to raising it above 5%. And the reason so many jobs are being created is because we have a systemic worker shortage. That doesn’t help the fight against inflation – and it’s actually something the Fed is targeting. The Fed wants to bring unemployment up. But the biggest thing the bull case fails to explain is why valuations are right back to where they were at the peak of the “everything” bubble of 2021. That’s an incredible feat considering we just came out of the bubble a year ago. And that fact should have every investor up at night. Take a look at this chart… [Image] This recent price explosion has not come on the back of rising earnings or even expectations of rising earnings. Prices have gone up but earnings expectations have dropped. And in the earnings releases this quarter, frequent cuts-to-revenue projections have been the norm. Companies found favor with investors through cost-cutting and downsizing instead. But that strategy’s incremental boost to margins can only take them so far. Eventually, top-line growth becomes a necessity. Free Trading Resources Have you checked out Larry's free trading resources on his website? It contains a full trading glossary to help kickstart your trading career – at zero cost to you. Just [click here]( to check it out. So Where Do We Go From Here? There’s a saying… Don’t forecast the market using data that the market itself forecasts – like earnings and economic data. If you do make that mistake, you’ll assume earnings expectations will improve once analysts wake up and smell the bullish coffee. But CEOs are driving these earnings estimates. And they are much closer to the action than the analysts at their Bloomberg screens. These CEOs are forecasting the same thing – a big growth slowdown. Stock prices tend to reflect the emotions of the people that trade them. They divert from the underlying forces that ultimately dictate their worth. In short, stocks tend to get out of whack pretty quickly… And there’s been a lot of pent-up demand to “go long.” So chasing this rally is almost guaranteed to fail… There will be lower prices up ahead. And one thing is certain… A 26 price-to-earnings (P/E) ratio – back where it was in 2021 – will not stand for long in a tightening cycle. Regards, Eric Shamilov Analyst, Trading With Larry Benedict Reader Mailbag Have you been siding more with the bulls or the bears lately? Let us know your thoughts – and any questions you might have – at feedback@opportunistictrader.com. IN CASE YOU MISSED IT… [How one stock could yield a comfortable retirement]( Here’s how you can make 37 years of market gains in just 8 days. And it’s possible to do it with less than $100. It’s called the “One Stock Retirement” strategy. It doesn’t matter what level of experience you have or what condition the market is in. Master Trader Jeff Clark considers giving the power back to everyday men and women to turn small stakes into potentially big profits his greatest accomplishment in life. He’s delivered gains like 86%, 100%, and 273% in as little as 8 days. [Watch Jeff’s video to learn how you can turn profits like this too.]( [image]( --------------------------------------------------------------- Get Instant Access Click to read these free reports and automatically sign up for daily research. [THE 101 GUIDE TO PRE-IPO INVESTING]( [The Trader’s Guide to Technical Analysis]( [The Ultimate Guide to Taking Back Your Privacy]( [The Opportunistic Trader]( The Opportunistic Trader 55 NE 5th Avenue, Delray Beach, FL 33483 [www.opportunistictrader.com]( To ensure our emails continue reaching your inbox, please [add our email address]( to your address book. This editorial email containing advertisements was sent to {EMAIL} because you subscribed to this service. To stop receiving these emails, click [here](. The Opportunistic Trader welcomes your feedback and questions. But please note: The law prohibits us from giving personalized advice. 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