To The Moon

With the start of the third quarter earnings season, the market had a rare two-day rally.

The last rally this year was during the Q2 earnings season. Many companies reported better-than-expected earnings and drove the market higher.

• In the face of a good earnings season start, can this wave of rally rest easy?

Let's look at how data and analysts explain:

Bullish Factors

1) According to FactSet,

Of the 45 companies have reported earnings as of today, 71% of them have beaten earnings expectations. While this is lower than the 5-year average of 77%, it is way better than analysts' expectations.

Specifically, many giant leaders released surprising results: $Netflix(NFLX)$ ,$Goldman Sachs(GS)$  $American Airlines(AAL)$.

With good opening of earnings season and the calendar effect of the fourth quarter, investors are hopeful for a sustained rally.

Some analysts say that if most companies beat earnings expectations, then US stocks will probably see a short-term rally.

2) In terms of market performance,

market sentiment has improved recently, with the number of stocks at record lows on the NYSE decreasing for three consecutive weeks.

3) Oppenheimer chief investment strategist John Stoltzfus had previously expected a rebound at the end of the year:

Positive factors include Q3 earnings exceeding expectations, lower inflation, positive results from the November midterm elections, and progress in Europe in addressing fiscal and energy challenges.

Bearish factors

1) $S&P 500(.SPX)$ is still overvalued compared to historical data

Goldman Sachs strategists noted that

the S&P 500 remains high compared to historical data, taking into account interest rate factors.

Citi believes that

Equity markets will continue to face more downward pressure in the near term.

The S&P 500's P/E has fallen to about 16 x from nearly 22 times at the beginning of the year, but is still higher than about 10 times during the 2007-2009 financial crisis.

2) $S&P 500(.SPX)$ is far from the bear market bottom

The decline in the S&P 500 since this January's high is smaller and shorter than the average decline in the last century when the market was in a similar situation.

In the many bear markets of the last century, the S&P 500 fell an average of about 38% over a 15- to 16-month period before bottoming out.

Do you think ​US stocks can rest easy with this rally?

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