The Bull Case After the Pullback in Stocks

The recent equity market correction represents a healthy digestion of gains rather than the end of the bull market, driven by a peaking rate of change in earnings revisions and slowing liquidity. While earnings revision breadth has reached extreme levels above 70%, the underlying growth story remains intact with a year-end S&P 500 target of 8,000. Liquidity support is decelerating as the Fed’s Reserve Management Program and Treasury buybacks scale back from their spring peaks, creating volatility in crowded momentum trades like semiconductors. This shift facilitates a leadership rotation toward undervalued sectors including consumer discretionary goods, transports, and regional banks. Easing macro pressures from interest rates, crude oil, and the dollar—bolstered by the reopening of the Strait of Hormuz—provide a favorable backdrop for interest-rate-sensitive groups. The market now pivots to the Federal Reserve meeting under Kevin Warsh’s leadership, focusing on bond market stability and a potentially less hawkish stance.