For the first time this year, the market was able to build some momentum after a strong pop on Fed decision day. It was a little shaky at the start on Thursday, but buyers regrouped and were able to squeeze some bears who were counting on the pattern of a post-Fed selloff to continue.
On Thursday night, Apple (AAPL) and Amazon (AMZN) helped to create additional exuberance with strong reports. Apple beat on both the top and bottom lines and had much better results for the iPhone and in China than expected. Amazon, unlike other retailers, said it has not been seeing margin issues and posted stronger revenue than was feared.
The question now is how much more momentum this bounce can generate. The market is on track for the best month of gains in almost two years, but there is still significant danger that it is just a very energetic bear market bounce.
The primary thesis for the recent strength is that the Fed rate hikes are having an impact. Inflation appears to have peaked and the economy is showing signs of slowing. Employment remains very strong and the consumer is still spending money, but the hope of the proverbial soft landing is helping to drive the market higher at this point.
There still are fierce economic headwinds out there. The economy is in the early stages of decline and the potential for inflation to stay sticky to the upside is quite high. Inflation may have peaked, but that doesn't mean it is going to trend down very fast.
Bear market bounces are always tricky because they tend to look like significant bottoms. They are big and powerful because they convince a large number of people that the worst is over, and as the fear of missing out sets in there is a tendency to chase good news, as we have from Amazon and Apple here on Friday morning.
Charts have certainly improved and there is good support building, but the great likelihood is that struggles lie ahead as we deal with ongoing economic issues. Some market players believe the worst already has been fully discounted. That may be possible, but we are in one of the most uncertain economic environments in years and there is likely to be plenty of uncertainty about the health of the market in the months ahead.
We will see how much more momentum Apple and Amazon can generate, but there are quite a few strategists suggesting that we are close to a short-term top.