Jason's World

It’s a bubble, they say. It’s not sustainable, they say.

All the people who decide to short or remain on the sidelines have made these kinds of remarks decrying today’s bull market as nothing more than a farce that will fade rapidly. They point to the fact that the stock market rallied 24% in the midst of the Great Recession from late 2008 to early 2009, and claim that we are still in a bear market rally.

They keep saying that even as the rise of AI ushers in a surge of enthusiasm for tech stocks that has pushed any stocks related to AI significantly upwards. The NASDAQ has risen by more than 25% year-to-date, with much of the gains happening in the past three months. That was after a gloomy year for Big Tech in which layoffs were widespread, so it’s only natural that renewed confidence in tech companies should push tech stocks significantly upwards to where they used to be before 2022-after all, the NASDAQ remains down significantly from its all time high of 16,212.23.

They are incapable of forgetting the doom-and-gloom projections of economic doom and earnings crashes at the beginning of the year. 

Here’s what really happened: during the first quarter, companies beat their estimates by an average of 6.9%, far above the pre-COVID-19 average of 5.2%. Though earnings growth appears to be negative, it is a far cry from the 6-7% many analysts forecasted for the S&P 500 companies.

As the effect of the banking crisis and the rate hike cycle turned out to be less severe than expected, perhaps it’s time to question some of the apocalyptic thinking that led so many analysts to lower their forecasts causing so much panic.

And don’t even get me started on the differences between today and the bear markets of 2008-09. Take a look at the bear market rally from November 21, 2008 to January 6, 2009. On November 21, 2008, the S&P was down more than 50% from its then all-time high, and then-President-elect Obama nominated Tim Geithner, who played a pivotal role in government efforts to rescue Bear Stearns and AIG and was therefore viewed favorably by Wall Street investors. There seemed to be a flash of hope for investors until reality set in on January 7th, 2009 that the economy was still in a recession.

Contrast that with the environment in recent years. Since the Fed embarked on its interest rate hiking campaign, fears of a recession in 2023 became widespread, and investors have been bracing for one throughout the year. Despite this, the S&P 500 never came close to falling by 50% from its previous high even as the banking crises of March raged on. Now, as the economy remains resilient, with the job market and consumer spending remaining strong, many analysts began to question these gloomy projections of economic doom in 2023, as many of the risk factors to the economy, such as the banking crisis, inflation and the debt ceiling standoff appear to be resolving to varying degrees.

In the mid-term, I believe that stocks will continue to rally as analysts begin to reconsider their earlier projections of economic calamity for the US. Bears crying wolf would only be screaming into the wilderness as a new wave of optimism grows amidst an economy that appears to be handling the chaos of the past year much better than expected as well as the AI revolution.