Ander Gillenea | AFP | Getty Images
A man incarnating a ‘Toro de Fuego’ (bull of fire) chases people during the San Fermin Festival on July 8, 2017, in Pamplona, Spain.
It’s finally happening. The broad market and key leadership sectors are breaking out of a downtrend. Bulls are starting to regain control of the narrative.
The big-cap S&P 500 and the small-cap Russell 2000 are both breaking out of a three-month downtrend characterized by a series of lower lows. That is now reversing. Today, when the S&P moved into the 2,680 range — the key breakout from that downtrend — the market lifted. The S&P has risen nearly 100 points, and the Dow more than 1,000 points, since Thursday’s lows.
February, March and April were tough for bulls, as a series of weaker economic data, inflation concerns, and debates about “peak earnings” had bears on the ascendency.
But in the past week, the bull narrative has been given support:
1. Second quarter economic data is better, particularly the jobs report last Friday that indicated modest jobs growth with modest wage inflation. First quarter GDP came in at 2.3 percent, far better than the 1.2 percent gain in the first quarter of 2017, and the 0.6 percent gain in the first quarter of 2016. The second quarter will certainly be much stronger, currently estimated at 3.2 percent.
2. There was no drop in earnings guidance. The argument that we are at “peak earnings” is bogus as long as we are seeing significant economic growth.