The Bull vs Bear Debate

Estimated reading time: 7 minutes

Whose Side Are You On?

At times, market bulls and bears can really butt heads. They get into heated debates, growing polarized and wanting to label one another as strictly bull or a bear — nothing in between. We believe we are in one of those times. 

The hardest thing about this climate is that it’s not black and white. Each side has very valid points, making it difficult to prove the other entirely wrong and requiring investors to be patient and practical. Of course, that’s easier said than done, especially when it seems that all they really want to hear is that everything is going to the moon because, ✨ AI ✨. 

Let’s explore some of these bull and bear arguments.

Charts Don’t Lie

For much of the market uptrend, we said the fact that strength was coming from multiple sectors was a reason to remain positive. But that trend, known as the broadening-out trade, had broken down by the end of September, with the largest percentage of S&P 500 stocks hitting new four-week lows since March. 

As you can see, things seemed to be improving once October came, with fewer stocks hitting new four-week lows… But we think we need to be careful about reading too much into that. The S&P 500 is only up 1.5% month-to-date. Just because there aren’t as many new lows doesn’t mean there are a lot of stocks rising, either. It’s just that the bleeding has slowed down.

Behavior is another important indicator of strength. For much of this cycle, we’ve pointed to the performance of cyclical sectors like Financials and Industrials, and AI-centric tech stocks as proof that the market was solid and unwavering. Unfortunately, since the beginning of September, much of that theme has broken down in favor of more defensive sectors like Consumer Staples, Health Care, and Utilities. It’s important to note that Energy is still at the top of October’s sector performance list because of high oil prices and supply constraints.

In any event, if defensive sectors become the market leaders, this will feel different from earlier phases of this bull market.

Last but certainly not least is semiconductors. These may be giving investors the most grief. The Philadelphia Semiconductor Index is down over 20% since its most recent high in June, and despite some attempts at recovering, it’s struggled to find further upside. It’s a hot topic of debate because investors see them as a bellwether for AI momentum.

Tell Me Something Good

It’s not all bad, we promise. Those making the bull case have good reasons on their side too. The strongest and most obvious is earnings strength. We’re in the midst of the third-quarter earnings season, and on the whole it looks to be another banger, with earnings growth expected to come in at 26% year-over-year. That would be the third consecutive quarter of growth above 25%, which is incredible. The 10-year average for quarterly earnings growth is “only” 12%. 

Valuations are another fundamental factor keeping the bulls optimistic. A bumpy market, coupled with strong earnings, has resulted in a compression of the price-to-earnings multiple from a cycle high of 23x in late 2025 to less than 19x today. This makes the market look a lot less expensive than it did before, perhaps even offering an attractive entry point if you believe the bull market has more room to run.

And of course, despite some bumps and bruises in AI-centric sectors of the market, CapEx spending on the AI buildout shows no signs of stopping. If there is a slowdown coming, it’s certainly not showing up in the data. 

So those are three fundamental reasons to stay positive and assume what we’re seeing this fall is simply a painful pause in an upward trend. 

For what it’s worth, we think this is the more likely scenario. However, We are painfully aware of high inflation, looming Fed decisions, and the concerning level of interest rates and yields around the globe. We also acknowledge that we are about to begin year five of this AI-driven bull market and at some point, we’ll stop tallying those years. 

Given the strong fundamental picture, we don’t think it’s time to stop yet. However, investors need to keep their eyes wide open over the next 6-12 months for indications that we’re moving into late cycle market behavior. 

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