Two the Point — Bulls versus Bears: A Good Old-Fashioned Standoff

A “wedge” in stock market analysis is a price pattern marked by converging trend lines on a price chart.  The lines show lower highs and higher lows, giving the appearance of a wedge as the lines approach a convergence. Wedge-shaped trend lines are considered useful indicators, as the eventual break in one direction is often followed by momentum in that same direction.1

2023 has started off with a bang.  The S&P 500 is up 4%, with many hard-hit areas of the market jumping far more – airlines, semiconductors, and various retail stocks, in addition to Bitcoin (and related crypto stocks) to name a few. 

The question now…is it sustainable?  Those who have read our 2023 Economic & Market Outlook will be familiar with our skepticism.  In short, a higher-for-longer interest rate environment (with its likely pressure on stock valuations) coupled with corporate earnings pressure will make significant stock market gains elusive this year in our opinion.

Presently, the Bulls and Bears have come to a perfect point of equilibrium.  The standoff will be resolved in the coming weeks, with the winner likely gaining momentum in the short-term.  Regardless of this short-term resolution, it will be important for investors to stay focused on sustainable drivers of stock market advances – a bottom in leading economic indicators and earnings expectations.  We do not expect this until much later in 2023.

Source: FactSet; Bryn Mawr Capital Management