Many readers have expressed puzzlement to me about the stock market’s rally in the face of negative headlines. They ask, if the news is so terrible, why do stocks keep going up? Below, I’ll strive to dispel unwarranted pessimism and lay out the bull case.

Fact is, two primary emotions govern markets: fear and greed. When fear grows out of proportion with fundamentals, the market has a tendency to bottom out. That’s exactly what happened when the bear stock market hit its low in October 2022.

Since the bear market bottom, Wall Street has been climbing a wall of worry, with the S&P 500 closing in on its all-time high.

WATCH THIS VIDEO: The Running of The Bulls

Yes, the daily news can be unnerving.

The Russia-Ukraine war remains a bloody quagmire; the Russians and North Koreans are rattling their nuclear sabers; authoritarianism is on the march around the globe; July was the hottest month in recorded human history, as global warming wreaks havoc on the planet; a former president of the U.S. was criminally indicted this week for the third time; America’s worsening political polarization resembles the run-up to a civil war…the bombardment of dire headlines goes on and on.

But remember, there’s always bad news. When I’m watching TV news anchors with their hair on fire about the latest crisis du jour, I’m often reminded of a lyric sung by my favorite blues artist, Mose Allison: “Well I don’t worry ’bout a thing, ’cause I know nothin’s gonna be alright.”

12 Reasons to be Bullish

Stay focused on the fundamental and technical indicators. Here are 12 reasons why we’re enjoying a bull market that’s likely to continue to year’s end:

1) Corporate profits are improving and surprising on the upside; analysts project a return to profit growth for S&P 500 companies as a whole in Q3 and Q4;

2) Corporate balance sheets are generally solid;

3) Inflation is dramatically falling, in the U.S. and around the world;

4) The Federal Reserve is coming to the end of its interest rate tightening cycle and experts expect a near-term pause, with rate cuts to start in March 2024;

5) The S&P 500 hovers well above its 50- and 200-day moving averages, indicating upward momentum;

6) The New York Stock Exchange Advance/Decline line (NYAD) also hovers well above its 50- and 200-day moving averages, indicating improving breadth;

7) The CBOE Volatility Index (VIX) has been falling and hovers well below 20, which reflects less fear and stress in the market;

8) U.S. and global economies have shown recent growth, exceeding expectations;

9) U.S. unemployment hovers at a 50-year low;

10) U.S. consumer confidence is rising;

11) The Fed as well as most analysts are no longer projecting a U.S. recession, with a “soft landing” increasingly likely; and

12) Despite the powerful rally, stocks as a whole aren’t excessively valued. The forward 12-month price-to-earnings ratio for the S&P 500 is about 20, which isn’t seriously out of whack with the five-year average P/E of about 19. Outside of the mega-cap tech stocks, value plays abound, especially among smaller stocks.

To be sure, the Fitch rating agency this week downgraded the U.S. government credit rating one notch, from AAA to AA+, citing the political aftermath of the January 6 insurrection, as well as persistent brinkmanship over the debt ceiling.

Fitch’s move sent stocks lower Wednesday. On Thursday, the main U.S. stock market indices extended their losses and closed in the red as follows:

• DJIA: -0.19%
• S&P 500: -0.25%
• NASDAQ: -0.10%
• Russell 2000: -0.28%

The Fitch downgrade continued to push up bond yields and weigh on equities. The benchmark 10-year Treasury yield jumped past 4.18%.

But perspective is called for. The U.S. credit rating was downgraded from AAA for the first time in history in 2011, also due to debt limit drama. Stocks tanked.

This time around, there’s less reason for concern, which is why the stock market’s adverse reaction has been comparatively muted. The federal debt burden and Washington’s tendency toward debt-limit theater are by now well known. The stock market’s Fitch-induced, two-day slide should be viewed as a breather, with investors taking the opportunity to pocket some gains.

Concerning Fitch’s downgrade, Jamie Dimon, CEO of JPMorgan Chase (NYSE: JPM), put it best. In an interview Wednesday, Dimon said: “It doesn’t really matter that much. It’s the markets that decide, not the ratings agencies that make these big decisions.”

Automated journalism…

I’ve often written about how algorithms govern Wall Street, a trend that is accelerating with the advent of artificial intelligence (AI).

But you may be surprised to learn that algorithms also drive the news business. Whether you’re a liberal who watches MSNBC, or a conservative who watches Fox News, the producers rely on formulas designed to keep you in a constant state of agitation, to generate ratings (and ad dollars).

Specifically, news organizations use recommender systems. These machine learning algorithms take large data sets (e.g., hundreds of video clips) and sort through them to make selections that are customized to appeal to a specific audience.

George Orwell would be impressed by the contemporary media’s tactics of manipulation. My advice: tune out the white noise. And start scooping up the intrinsically strong stocks on your wish list that you were too nervous to buy during the bear market.

Editor’s Note: I’ve just explained a dozen reasons to be bullish, but risk hasn’t disappeared, of course. That’s where my colleague Jim Pearce comes in. He doesn’t worry about market mayhem…he makes money from it.

Jim Pearce is chief investment strategist of our premium trading service, Mayhem Trader. Jim has developed an under-the-radar strategy to flip market mayhem into fast payouts. Want to learn more? Click here now.

John Persinos is the editorial director of Investing Daily.

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