The market is an argument staged every day about the value of tomorrow. And right now, to an unusual degree, the market itself is giving each side of the the bull-bear debate sheaves of evidence supporting its case.
The bright-side view is right there on the surface:
"How can you not like a market that's on track to deliver a 12 percent gain this year in the S&P 500 on top of 20 percent last year? The new record high in recent weeks proves the uptrend is secure, more stocks are rising than are falling on a running basis. When the S&P is up more than 5 percent year to date into September, history shows the year finishes strong most of the time.
"Earnings are about to rise 20 percent for the third straight quarter, fully supporting the equity market — and making valuations look perfectly acceptable given tame interest rates. Stocks have absorbed Fed rate hikes, including two more this year. No recession is within view based on the leading indicators. Trade-war worries have been a positive by keeping bond yields well-behaved and moderating investor sentiment. Credit markets are firm. It's too early to worry much about the market."
The cautious view grants all of the above but takes issue with the interpretation:
"What does it say that it's taken so much great fundamental news to muscle the market higher by 8.6 percent as of mid-September? A huge tax cut pouring hundreds of billions into the private sector, record-high profit margins and forced repatriation of corporate are not annual blessings.
"If things are so great, why are housing and auto-related stocks reeling and the modern-day industrial bellwether semiconductor sector rolling over? Defensive sectors such as utilities and health care have outperformed for the past three months. Bank stocks have done nothing all year. Global equity indexes are almost all down double digits from their highs. Sure, most U.S. stocks are higher, but the four biggest tech stocks have produced an outsized proportion of the indexes' appreciation this year. The market is telling you it's time to start worrying."
The steady trend of rising share prices and lack of financial stress or noteworthy recession signals leave the benefit of the doubt with the bulls. The fact that third-quarter GDP is still tracking above 3 percent and forward S&P 500 earnings estimates are holding up well could mean time is running out for the fundamentals to fall apart in time to pressure the market much this year.
Bespoke Investment Group has compiled a useful ledger of "pros and cons" for the market, updated through last week — with a few more positive than negative signals. One of the counterintuitive positives: In past instances of stark outperformance of U.S. stocks against overseas markets, "the trend of US outperformance typically continues through year end when the disparity has been this wide entering the final quarter."
Jurrien Timmer, Fidelity's director of global macro, also noted that bouts of severe underperformance by emerging markets in the past have usually been resolved by EM recovering back toward the U.S. and not the U.S. buckling.