The Bears May Sound Smart, But Price Action Is King
Many are convinced an economic reckoning is still in the cards. Perhaps they will be right, but the current market action is telling us they aren’t.
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The S&P 500 closed on December 31, 2024, at 5881.63. At the close on May 14, 2025, it was at 5,886.55, which represents a year-to-date gain of about 5 points. That is very mediocre, but, of course, it fails to reflect that the S&P recovered more than 1000 points from the low it hit on April 7, 2025.
With those losses fully recovered, the primary question now is whether it is clear sailing to the upside from here. Market sentiment has greatly improved as worries about the impact of tariffs on the economy have diminished.
Technical action is extremely strong with a rejuvenation of the Magnificent Seven MAGS, the semiconductor sector, and the AI theme. Valuations are lower, and there is still a mountain of worries for the market to climb.
Despite the steady diet of positive news flow recently, there is still a sloth of grizzly bears convinced that an economic reckoning is still in the cards. They believe that the trade turmoil has already caused irreversible damage that will drag an already vulnerable economy lower.
One major concern of the skeptics is that the dollar has lost appeal, and many giant institutional investors are still at the early stages of rebalancing with lower exposure to U.S. assets.
Strategists from major firms such as Goldman Sachs are concerned that stagflation is still an issue and that economic disappointment lies ahead even if Trump is successful in his trade and tariff endeavors.
Bears can always find a logical and compelling argument. Indeed, there has never been a market without bears telling us that disaster lies ahead.
Perhaps they will be right, but the current price action is telling us they aren’t. While that price action may shift in the weeks and months ahead, the bulls deserve the benefit of the doubt at this time. That doesn’t mean we should throw caution to the wind, but until there are some technical warning signs, it is safe to ignore the bears and the pessimists.
My game plan at this juncture is to be a little more aggressive at protecting some sizable recent gains and to be very selective with new buys. Although there is very strong momentum in many places, there aren’t many good entry points. Some consolidation and pullbacks to support levels would make it much easier to put cash to work, but pullbacks can look like the end of a trend, so careful trade management is needed.
We have a flat start on Wednesday morning, and there is no important economic news due until Thursday.
At the time of publication, Rev Shark had no positions in any securities mentioned.
