An intensely polarized debate in America came to a head this week. Forget the midterm elections; it’s bears versus bulls. U.S. stock markets surged the most since March 2020 on Thursday after weaker-than-expected inflation data was released there. However, forward estimates for U.S. corporate earnings have yet to follow suit. Without a decline in earnings, typically by a fifth or more during recessions, Societe Generale says, it’s hard to believe the end of the US bear market has come. Falling profits are expected to lead to widespread job cuts, and not just at top tech companies. This would encourage another pause in consumer spending. Across all sectors, there is very little evidence of falling profits. Even when the impact from energy producers is removed, US earnings per share are expected to climb more than 7% in 2023, according to data from MSCI. Elsewhere, earnings growth rates also have a positive slope. However, market behavior and logic do not always coexist. Writing in the Financial Times earlier this week, Rockefeller International’s Ruchir Sharma asked – almost heroically – whether a US (and global) recession would even happen. A dizzying trajectory of the rate of price inflation in the United States could pause. The US Federal Reserve would then rethink its aggressive stance on raising interest rates. Market optimists can argue that bad news is priced in. Investor sentiment recently recorded zero out of 10, according to Bank of America’s sentiment indicator, as levels of cash in portfolios have risen steadily this year. In this environment, reactions to the slightest good news are possible. Yet even if inflation moderates, it could prove sticky and take root, says Alberto Gallo of Andromeda Capital Management. The chances of it collapsing, the dollar weakening and corporate earnings remaining bulletproof are slim. When earnings have fallen and job markets have eased, only then should the bear market end. Our popular newsletter for premium subscribers is published twice a week. On Wednesday, we analyze a hot topic from a global financial center. On Friday, we dissect the main themes of the week. Please register here.