Some Reasons to be Optimistic about the Market

The stock market looks like an opponent playing Alabama in an early season non-conference football game -- getting steamrolled.

Bonds aren't helping - down 11% YTD - their worst drawdown in 20+ years.

Inflation is suffocating; sitting at the highest levels since the early 1980s.

The bad news is things could continue get worse.

"But other than that how was the play Mrs. Lincoln?"

The good news is there are some signs of capitulation and reasons to remain optimistic.

The stock market historically puts together some of its best performances after going into bear markets. (Via LPL)

Consumer sentiment - currently sitting at 50.0 - is the worse reading in the history of the survey, dating back to 1952. During the depths of the GFC (November '08), the lowest we dipped was 55.3. A lot of negativity is priced in!

Markets are resilient over time - one of the best illustrations of that fact below. Over any 5 or 10 year period, the odds are stacked heavily in your favor. (Data via Vanguard from Fama-French data series)

When in doubt, you can always zoom out.

Cracks are beginning to show in the "higher inflation for longer" narrative. One example - mortgage rates. A 30-year mortgage has gone from 2.6% to nearly 6.0% in 18 months; this will likely put a dent in the rapid appreciation seen in housing markets.

The housing affordability index is at its lowest level since 2007.

Used cars - another large component of the inflation index - growth rates have begun to slow, another possible sign inflation could slow sometime in the future. (Data via LPL)

Valuations across the U.S. market spectrum reflect cheaper prices. Earnings can always go lower (especially given the backdrop of high oil prices, increase in USD, and higher rates) but valuations are significantly more compelling now than they were 18 months ago. (Data via Yardeni Research)

Non-U.S. stocks reflect the same story. (Yardeni Research)

To be fair, nothing shown above screams "BUY BUY BUY". There's no shortage of things to be worried about but that’s what creates opportunity.

If you need cash in the next 18 months, this markets still not for you. But if you have five year time horizon or longer, things are getting more enticing.