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Why bears will get hammered even more

Market bears are bearish as never before. It is stunning. But unfortunately, they are on the wrong side of the market. Their asses will get kicked badly as we are recovering from a recession. I say “recovering” because we were in a recession already. But the bears failed to recognize it, and they expect it yet to come. I don’t think it will come. As inflation eases, companies and the economy will be improving.

In 2020 everyone thought the economy would crash into a deep recession and the businesses would come to a halt. They overestimated the impact. As we saw a sharp recovery, the businesses realized that they were wrong, and the economy was booming. They went on a buying spree. But they were ordering online goods, home improvement tools, merchandise, hardware, etc. They thought people would stay home forever, working from home and remodeling their houses, using Zoom and other online services, streaming movies, and trading stocks. Companies were desperate to hire people, and they hired anyone who applied, even though he or she wasn’t needed but was willing to say “yes.” Even today, businesses still offer sign-up bonuses! They, again, overestimated the Covid and post-Covid impact. Stimmies didn’t last.

In 2021 we saw a sharp recovery, a boom! The stock market rallied like never before. The businesses reported record earnings and hired an enormous number of new employees. And once again, it was overrated.

In 2022 companies failed to meet Wall Street’s unrealistic expectations, and everybody was shocked; how come a company that sported an average EPS in the pre-covid era of 2.00 per share, reported 5.00 per share in 2021, suddenly reported 2.90 in 2022? It was obvious to every normal person with critical thinking that 5.00 EPS per share was not normal, and expecting businesses to report anything close to that number was a pure utopia. But this was not obvious to Wall Street analysts drunk on spectacular gains in the 2021 dream, and they euphorically expected more… like a drug addict who needed more, but it was doomed to crash. And add to it inflation that was sparked by shortages of everything across the board, and the calamity was brewing. And suddenly, all these euphoric bulls flying to the moon turned into bears and predicting crashes, the end of the world, and catastrophes never seen before.

But as these former bulls were wrong with their bullish expectations, they are again wrong with their bearish expectations. We entered this earnings season with S&P 500 EPS expectations of $50.76 a share. So far, 53% of S&P 500 businesses reported earnings, which came out at $52.02 a share! The largest EPS growth we have ever seen! And as we all know, the market is driven by earnings. If earnings stagnate or go down, markets stagnate or go down; when earnings go up, markets follow. And if we, God forbid, extrapolate earnings to the remainder of the S&P 500 companies that are to be reporting soon, we may easily see an EPS of 54%! And if this happens, expect the market to follow. An 8% jump this quarter can easily happen! Can you imagine what will happen to the bears?

And we see this improvement across the board of well-known businesses: Chipotle, Microsoft, Churchill Downs, Meta Platforms, Google, Boeing, etc., etc., etc.! I have always said that in the stock market, it is earnings, earnings, and earnings that matter the most! We are beating them!





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