[US Stock Market Bottom Debate] "Bear Market Is Over" vs "Rebound Within a Downtrend"

[Asia Economy New York=Special Correspondent Seulgina Jo, Reporter Minji Lee] The recent rise of the stock market bottom theory on Wall Street in the United States is primarily due to corporate earnings. With inflation expectations easing, the second-quarter results of major companies including Netflix exceeded expectations, reviving risk asset preference sentiment.

In addition, declarations from prominent investment veterans have followed. After Ed Yardeni, chairman of Yardeni Research, mentioned the 'June bottom theory,' Jason Goepfert, founder of Sentimentrader, also diagnosed it as a 'bear market (downtrend) ending signal.' On the other hand, warnings such as "rebound within a bear market (CFRA Research)" and "do not make mistakes (Morgan Stanley)" continue to pour out.

◇Why is the 'bottom theory' spreading on Wall Street?

According to financial information provider Refinitiv on the 20th (local time), about 60 S&P 500 companies had released their second-quarter earnings by that date, and 78.3% of those companies exceeded market expectations. This is lower than the average of the past four quarters (81%) but significantly exceeds the average since 1994 (66%).

Moreover, the S&P 500 index and Nasdaq 100 index surpassed their 50-day moving averages for the first time in about three months, raising expectations that future index declines will be limited. Art Hogan, chief market strategist at B. Riley FBR, told the Wall Street Journal (WSJ), "Inflation expectations have declined, and so far the earnings season has been better than feared," adding, "Risk appetite is returning."

Founder Goepfert diagnosed on his Twitter that "the bear market is over." He analyzed that when the stock market recovers from a 52-week low and on two out of three trading days more than 87% of traded stocks rise, the S&P 500 index did not record a negative return that year. He explained that this is a historically confirmed, exception-free "perfect track record" observed 24 times since 1940.

In the graph attached by founder Goepfert, the median S&P 500 index increase one year after this trend confirmation reached 23%. Furthermore, this probability was 100%. The likelihood of an increase within six months after trend confirmation was 77%, with a median increase of 13.7%.

Goepfert is not the only Wall Street veteran declaring the bottom theory. The day before, Yardeni stated that the S&P 500 index appeared to have already hit its low in June. Jim Cramer, an investment expert broadcaster and former Goldman Sachs banker, analyzed the 'Williams Fear Index' and diagnosed the New York stock market rebound the day before as "the start of a long upward rally." Bank of America (BoA) also mentioned it as a 'summer rally' signal.

There is also analysis that while it is not yet the bottom, it is quite close. Thomas Peterffy, founder of Interactive Brokers, appeared on CNBC that day and predicted, "The bottom will be hit by the end of this year, and then the market will relatively sail smoothly." He added that how the U.S. handles inflation will determine the level of smooth sailing in the stock market going forward.

However, counterarguments continue. Although inflation expectations have eased, inflation has not yet declined, and issues such as the Russia-Ukraine war and supply chain disruptions persist. Debates about recession surrounding the U.S. and global economy are also intensifying.

Sam Stovall, chief investment strategist at CFRA Research, pointed out, "Historically, rallies within bear markets are more likely." Matt Maley, chief market strategist at Miller Tabak + Co., also argued that "the weakening economy is not strong enough to support today's stock market," claiming the bear market is not over yet. Michelle Weaver of Morgan Stanley expressed skepticism about stock market optimism and warned of a decline in the S&P 500 index, saying, "Do not make mistakes."

◇Is the Korean stock market also bottoming out?

Opinions are also emerging that the domestic stock market is entering a bottoming phase. Currently, the KOSPI dropped sharply by about 13% from the 2600 level to the 2300 level over a month following the U.S.-originated inflation shock in early June, and this month it is attempting to stabilize around the 2400 level.

Above all, although the earnings of major companies are being revised downward due to the economic slowdown, the dominant analysis is that the price level has reached a point where further declines are difficult. Looking at Samsung Electronics' price-to-book ratio (PBR), it is close to the historical low of 1.1 times during past sharp price drops, and SK Hynix is also at a historically low level around 1 times. Researcher Inji Jung of Yuanta Securities said, "Even if there is an additional downward revision of earnings forecasts, the possibility of a decline is low, and rather, the possibility of an increase can be considered."

Expectations for foreign inflows in the second half of the year also support the bottom theory. Currently, foreigners are strengthening their preference for safe assets due to high inflation and tightening policies by major countries. For foreigners to flow back into the domestic stock market, passing the peak of inflation is essential, which is expected around the end of the third quarter.

However, since there is high uncertainty about the timing of the end of tightening policies by major countries, opinions also suggest caution in bargain hunting. Researcher Junho Byun of IBK Investment & Securities said, "When the growth rate is presented sluggishly next year, the KOSPI often shows a deep downward trend in the second half," adding, "Assuming zero growth next year, the KOSPI bottom should be considered open to around the 2100 level."

This content was produced with the assistance of AI translation services.