Welcome to this edition of the Watch series where we’ll for once let fundamentals play the second violin and rather take the temperature of the stock market. Do the Bulls have one up on the bears?

The relative strength between bulls and bears seems to be changing, and even Goldman Sachs has adjusted their projections for an economic downturn for the ‘softer’- now seeing a recession probability of 25% versus 65% in January.

Aside from cooling inflation, the current economic data sure don’t fuel much optimism. Nevertheless, markets seem to oppose, and risk assets have rallied across the board. Has the rally got legs, and have we in fact just entered the next bull market? Let’s run the numbers. 

Takeaways up front:

• Breadth is improving. 
• …

The relative strength of buyers against sellers has crossed the 70 mark in most sectors defining ‘overbought’ territory – albeit this definition is arguably misleading. All but one subsector in the S&P are up on the month and, tellingly, the rather defensive ‘consumer staples’ is the laggard.  

Chart 1: S&P Sector Dashboard