Reversal Days Signal Sideways Stock Market

Stock investors don't know whether they are coming or going. They don't have much conviction. Yesterday, we observed that there are more market letters calling for a correction than either a big move up or down in the stock market. Reversal days seem to be occurring more frequently recently. Some days the market starts by moving down only to finish up. The next day, it goes the other way.

Our Blue Angels analysis shows that the forward earnings of the S&P 500/400/600 topped out in late June (chart below). During July's earnings reporting season for Q2, industry analysts shaved their earning estimates for both 2022 and 2023. Now that the S&P companies have all reported, we expect that the forward earnings of the three S&P stock composites will move sideways for the rest of this year before resuming their uptrends. (Forward earnings is the time-weighted average of analysts' consensus earnings expectations for the current year and coming year.)