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Why Stock Market Bears Are Positioned For Failure

Why Stock Market Bears Are Positioned For Failure - stock market bear

The Dow Jones Industrial Average came back with a vengeance yesterday, jumping more than 150 points and snapping eight straight days of declines. The rally extended beyond the Dow, as the prices climbed in both the Nasdaq and S&P 500 to within -0.5% and -1.5% of their all-time highs. 

In short, it was a massive reversal in sentiment, as investors seemingly soured on stocks by the House Republican's inability to make good on rhetoric to repeal and replace Obamacare last Friday.

To say the least, it was dissappointing. After seven years of Obamacare hand-wringing, 62 prior GOP repeal votes, and Trump's repeated promises to repeal the law at least 68 separate times on the campaign trail, investors questioned whether our Negotiator-In-Chief would make due on ambitious plans to Make America Great Again.

Make no mistake, this bull market remains firmly intact.

Inside Durable U.S. Growth

#Economy #DurableGoods #ConsumerConfidence

This cloudy narrative gave way to sunny optimism quite literally yesterday. The US Consumer Confidence report for March 2017 registered a 196 month high, the highest level of confidence in over 16 years.

Stretch out those trapezius muscles before checking out the Chart of the Day below, from today's Early Look, Consumer Confidence is straight-up and to the right.

This followed a string of U.S. economic reports that cast doubt on Wall Street's dour economic warnings: Durable Goods, +5% year-over-year growth and Capex, +2.7% y-o-y.

Why Stock Market Bears Are Positioned For Failure - 03.29.17 EL Chart

On the Consumer Confidence news, the 2-year U.S. Treasury yield backed up 4bps on the week, to 1.29%. Housing stocks (ITB, XHB) briefly wobbled, as investors feared rising rates would hamper homebuying. But then S&P/Case-Shiller data released yesterday showed home prices nationally rose +5.7% year-over-year, a 3-year high.

Stock Market Bears Get Pummeled (Again)

#StockMarket $XLK $XLV $XLY

In light of all the economic cheerfulness, investors bought U.S. stocks big time. Total equity market volume – the sum of all stock market buying and selling yesterday – accelerated +17% day-over-day and +21% versus the 1-month average.

Translation: Investors, sufficiently convinced that this bull market remained firmly intact, went out and bought stocks.

Digging still further under the hood of major stock market indices reveals investor conviction in a strengthening American economy. The sectors you'd expect to rally when U.S. growth is heating up are leading year-to-date performance:

  • Technology (XLK): +10%
  • Healthcare (XLV): +8.1%
  • Consumer Discretionary (XLY): +7.1%

Why Stock Market Bears Are Positioned For Failure - sector performance 3 29 17

Bottom Line

The setup is pretty simple: the U.S. economy is heating up => U.S. stocks head higher => Stubborn stock market bears lose money.