The first quarter of 2023 ended very positively as stocks ran higher for the third-straight day. The personal consumption expenditure inflation report on Friday morning was close to expectations and did not interfere with the momentum building as concerns about the bank crisis subsided.
Ironically the worst banking crisis since 2008-2009 has been a positive market catalyst. Concerns about tighter lending caused expectations for further Fed interest rate hikes to fall sharply. The worries about inflation evaporated, and the market doesn't seem to believe that significant economic slowing is about to occur.
Bulls have been emboldened by a bounce in the Nasdaq 100/Invesco (QQQ) of 20% off last year's lows. There are headlines that this marks the start of a new bull market, but there is disagreement over the exact definition of a bull market. It is more accurate to say that a 20% bounce is "not a bear market" rather than a new bull. There is a middle area between the two.
As we move into the second quarter, the bulls and bears will fight about whether the economy is headed for a recession and whether earnings expectations are too high. The bulls currently seem remarkably unconcerned about these issues and are focused on positive price action and momentum. But some serious economic bears are convinced that substantial problems are ahead. Those growling bears are fuel for the bulls. The economic bears were dinged up severely in January, when they thought earnings would be soft and trigger another down leg, but they are not giving up.
A few weeks ago, it looked like the banking crisis would trigger the predicted economic slowdown. But aggressive action by the Treasury Department and plenty of liquidity from the Fed have created positive momentum, leading to some fear of missing out. We will see if the bulls can keep things running next week.
Have a great weekend. I'll see you on Monday.
