MarketBites: Analyzing the Market Rally
Portfolio Manager Commentary:
It is a bit concerning how quick this bear market was. Thanks to Friday's massive bounce, the stock market is out of a bear market (a decline of 20% from peak to trough). However, this doesn't mean that things will return to normal and Arnold Palmer Ice Tea can be once again enjoyed for $1/can. Mini rallies in bear markets are frequent, sneaky, and play nasty tricks with people's emotions. "Did you just miss the next bull run?" While anything is possible in equity markets, I would bet on no.
Why did we bounce on Friday? The University of Michigan survey showed 5-10 year inflation expectations coming down slightly. Plus, home sales surprised to the upside even with mortgage rates reaching heights unseen for the last decade.
On Monday, the Census Bureau will release the durable goods report for May, which will give insight into business investment and consumer spending. And Nike and Jefferies Financial Group will report earnings.
Chart of the Day:
Here is an interesting chart from Arbor Research that shows the "building blocks" of the current valuation of the S&P 500 Index. Red: Book value means the current value of real assets (think property, plant, cash etc...). Blue: Growth discounted to today that is most likely to happen. Yellow: The uncharted waters of Cathie Woods discounting Tesla's revenue from humanoid robots from 2040.
Source: Arbor Research