Pompliano: Should we be bullish or bearish now? Don't let politics interfere with investment allocation.

In the current environment, investors are facing the question of whether to be bullish or bearish. This is not just a divergence of sentiment and viewpoints, but also the key to capital allocation and risk management. This article is excerpted from Bitcoin Whale Anthony Pompliano's The Pump Letter Podcast, where he analyzes whether investors should be bullish or bearish right now, trying to clarify the meaning behind the recent market conditions amid high fluctuations.

Is the valuation too high, and is the market likely to correct?

First, Pompliano cites Kevin Gordon, a senior strategist at Charles Schwab, who pointed out in a post on X that the expected price-to-earnings ratio of the S&P 500 index has returned to the high levels of January 2021, but the interest rate environment is vastly different. At that time, the federal funds rate was only 0.09%, while it is currently as high as 4.09%. This means that in a tighter monetary policy context, the market has given the same or even higher valuations. Independent market observer X Capitalist stated that investors now have high hopes for artificial intelligence, believing it can boost corporate profits at an unprecedented pace, but there is currently no clear evidence for this, and the expectation itself carries a high level of risk.

Still bullish? AI-related stocks contributed 75% return to the S&P 500

Despite controversies over valuation levels, there are no signs of a collapse in corporate fundamentals. Kevin Gordon adds that the expected profit margin for the S&P 500 index has reached a historical high, indicating that companies can still maintain high profitability despite layoffs and digital transformation. Technological innovation, particularly artificial intelligence, has become the main driving force behind the rising stock market. According to an analysis by J.P. Morgan strategist Michael Cembalest, since the advent of ChatGPT in November 2022, AI-related stocks have contributed approximately 75% of the S&P 500 index's returns, 80% of earnings growth, and a 90% increase in capital expenditures.

Technical analysis and seasonal support for bulls

From a technical perspective, market momentum is equally strong. Ryan Detrick of Carson Group pointed out that when the S&P 500 reached an all-time high in September, historical data showed that over 90% of the time in the subsequent fourth quarter, it exhibited an upward trend. Additionally, according to Bloomberg data, the index has not fallen more than 2% for 107 consecutive trading days, marking the longest stable trend in over a year. The market generally expects a 94% chance of the Federal Reserve lowering interest rates in October, which provides additional support for risk assets.

Pompliano: Don't let politics interfere with investment willingness, GDP exceeds expectations, consumer spending remains strong.

The economic fundamentals are also sending optimistic signals. The growth rate of the U.S. real GDP for the second quarter has been revised up to 3.8%, significantly higher than the previously estimated 3.3%. Strong consumer spending, rising income, and reduced imports—these data not only drive economic growth but also confirm that the market's optimistic sentiment is not unfounded. Ryan Detrick of the Carson Group stated that when the S&P 500 index reached an all-time high in September, it tends to rise over 90% of the time in the fourth quarter. Almost every president has seen the stock market rise during their tenure, regardless of whether they are a Republican, Democrat, independent, or foreigner. Pompliano emphasizes not to let politics interfere with your investment decisions. Historically, regardless of which party is in power or who the president is, the long-term trend of the stock market remains upward.

The current market presents a confrontation between "technological prosperity vs. valuation bubble." Bears believe the market has detached from fundamentals and could correct at any time; meanwhile, bulls point to profit growth driven by artificial intelligence and economic resilience, which is sufficient to support high valuations.

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