Stock Market Outlook - Bulls vs Bears
Looking at the stock market the past week was very interesting. It was very impressive to see the fight between the bulls and the bears. And it was even more impressive to see that the bulls did not let the bears take over. In this article we will take a look at the past week and will look at the stuff that is ahead of us.
In general, the report season is going very well. Almost 80% of the companies in the S&P 500 overshot the expectation of the analysts. In average it was an overflow of 13%! The problems that we are seeing are coming from the NASDAQ. Almost all of the technology companies are not doing great so far. That is also can be seen if you compare the S&P growth against the S&P value ETF as can be seen in the graphic below.
Although this fight between the bulls and bears is somewhat concerning, there are still a lot of good points that are worth mentioning. To start things of, it can be seen that stocks of companies that have real problems with their supplier network, due to COIVD, are doing better than the analysts expected. This could be interpreted that the fear of these supplier problems is already calculated into the analysts forecast and that is why the companies were able to outperform this forecast. Secondly, there are the companies where we see a lot of margin pressure. These are companies like airlines.
So what will happen over the next few days? Imagine you are a fund manager. If you are lucky and the rest of the result season come in positive there will a slightly positive reaction and if you are unlucky you are literally sitting on a minefield and the whole yearly performance of the fund is exploding into the shadow realm. That means that the risk reward ratio for institutional investors is not very favorable if you want to take more stocks into your portfolio. As a private investor you are very flexible, people can go very fast in and out but institutional investors are not that quick on their feet. Like I said before, the real problem is that if the rest of the season will be not as expected the whole stock market could become a mine field for the portfolio. Especially if we look at the supply situation of the technology companies like Intel (shortage of chips!).
Looking forward into the next weeks, it is pretty hard to predict who comes out on top. I think it will al depend on the upcoming reports by Facebook, Alphabet and similar big NASDAQ companies. It is pretty clear that the S&P 500 consists of a big chunk of these companies and these companies are supposed to be overvalued. That means that if these companies happen to report not so exciting results over the course of the next week, we could see a massive drop in the S&P 500 and with that probably in the whole stock market. Only time will tell if this will happen. On the other side it is also important to mention that the demand is still not low and the main problem is the supply. That means that with lower COVID restrictions there will be soon more supply again and with that a relief in the markets.
Published by ga38jem on
On 24th October 2021