2023 has been bad for the bears. Here are 5 reasons why it’s going to get even worse.

The market’s response? The S&P 500 SPX, +0.46% is up 5.5%, the Nasdaq Composite COMP, +0.51% has surged 14.8%.

The Puritans first banned bear baiting in England in the middle of the 17^th century. Nearly 400 years later and it seems the blood sport remains rife on Wall Street.

Tom Lee, head of research at Fundstrat, delivers his mauling with a gentle smile and forceful stats.

“Many skeptics (anecdotally, the majority of our clients) are likely sniffing at these gains, as mere noise until the bear market re-asserts itself. But…we believe 1Q23 gains now solidifies that bears are now trapped,” says Lee in his latest note.

The lows are in and stock market gains will continue in April, says Lee, and he gives five reasons why.

First, the banking blowup is more of a “clean up in aisle 7” than a full-blown crisis. It was a social media-generated bank run that has not spread from regional banks to a broader loss of confidence in the banking system, Lee reckons.

Second, traders are going to start perceiving monetary policy issues as more supportive. “The Fed made a ‘dovish hike’ in March and we expect incoming [softer] inflation data to support a further pause .”

Consumer inflation expectations of 3.8%, as observed in the latest University of Michigan survey, Lee notes, are now significantly below February’s CPI reading for February of 6%. At 220 basis points, it’s the largest negative spread since late 1982.

Next, some technicals. The S&P 500 has just recorded two successive positive quarters, a trend that over the past 50 years has not been seen in a bear market.

“Barring a big sell-off Friday (worse than -5.5%), two consecutive quarters of gains validate the start of a new bull market. This only solidifies our view that 10/12/22 was the bear market low and we are 6 months into a bull market,” says Lee.

Fourth, Lee has mentioned before that certain trends tend to follow when the markets begins a year with a rally of more than 1.4% over the first five days when the previous year was negative. Simplifying, this tends to mean the advance accelerates over March and April.

“April 2023 should see stronger gains of around 4% this would push S&P 500 to greater than 4,200.”

Finally, speculative positioning remains overly bearish. Traders are net short 202,000 E-mini S&P 500 futures contracts ES00, +0.47%, nearly the same level as seen when the market hit its recent trough in October.

And Lee finishes with a spot of ursinal teasing. Pointing to a tweet from fund manager Michael Burry in which he admitted he had been wrong to say “sell” two months ago, Lee wryly observes: “Notably, some bears are beginning to exit the ‘trap’.”

Markets

S&P 500 futures ES00, +0.47% were up 13 points at 4093, while 10-year Treasury yields TMUBMUSD10Y, 3.523% dipped 1.6 basis points to 3.537%. The dollar index DXY, +0.12% rose 0.2% to 102.38.

Try your hand at the Barron’s crossword puzzle and sudoku games, now running daily along with a weekly digital jigsaw based on the week’s cover story. To see all puzzles, click here.

The buzz

One of the Federal Reserve’s favored inflation gauges, the PCE index, was published at 8:30 a.m. Eastern. The annual core inflation rate dipped from 4.7% in January to 4.6% last month. Economists had expected 4.7%.

Other U.S. economic data due on Friday include the Chicago Business Barometer for March, released at 9:45 a.m. and the University of Michigan final reading of March consumer sentiment at 10 a.m.

More Fed officials are taking the mic, too, with New York Fed President Williams talking at 3.05 p.m.; Fed Governor Cook speaking at 4.15 p.m.; and Fed Governor Waller making comments at 10 p.m.

Shares of Chicken Soup for the Soul Entertainment CSSE, -37.81% plunged more than 25% after the streaming services group said it would sell stock and reported a loss for the fourth quarter.

China’s services activity expanded in March at its fastest pace in 12 years, but manufacturers slowed, data released Friday showed.

Annual eurozone inflation fell from 8.5% in February to 6.9% in March, but core inflation, which strips out recent sharp declines in energy prices, rose from 5.6% to 5.7%, Eurostat said on Friday.

The U.K. economy grew 0.1% in the fourth quarter, data released on Friday showed, meaning Britain just managed to avoid a recession in 2022.

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The chart

Regular and timely data is very useful for investors. It’s also pretty rare. Is the weekly jobless claims report going to have its day in the sun again? As concerns about inflation and Fed policy perhaps wane, worries about the depth of any economic downturn will build. The WJC’s snapshot of the labor market every seven days should thus carry greater heft. And as the chart below from Kevin Cummins, chief U.S. economist at NatWest Markets, shows, the coming reports may not paint a pretty picture of the jobs market if the relationship to the Challengers survey stays tight.

Top tickers

Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.

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