The arguments between the bulls and the bears in the current market has one interesting twist: both are shaving off pieces of the economy and ignoring the rest. The bears for focusing on housing and capital spending while ignoring the employment and wage situation. In contrast the bulls are focusing on employment and wage gains without taking full stock of the housing problems -- or in the least arguing that housing won't spill over because it hasn't yet.
However, I think the bulls have a stronger argument for now simply because they are already in control of the market. The markets have rebounded fairly well from the China sell-off and appear to be moving up still.
That being said, I think the bulls will remain in control for now, assuming the following happens.
1.) Earnings continue to at least meet expectations.
2.) There is no severely negative employment news. For example, last month the BLS reported a gain of 180,000 with upward revisions to previous months. From the bulls perspective, this news will help to fuel wage gains which will drive consumer spending.
3.) The torrid merger and acquisition pace of the last few months continues.
4.) Consumer spending continues in positive territory. Consumers account for 70% of US GDP growth, so their continued spending is vital to keep the economy from falling into a recession. I have been very negative of consumers, largely because of debt levels. However, we have yet to see a level where consumers don't spend. Until we see that, we need to assume the consumer will continue to buy all sorts of stuff.
5.) News of the subprime mortgage problems remain largely contained in the subprime area. If we start to hear a spate of news about prime mortgage defaults increasing or a large number of banks increasing loan loss reserves, than bulls may get skittish. We have already had some news to this effect in the market, but I don't think it's enough to scare the bulls.
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