Just as the cultural period we call the ’60s began with the release of “Blow in the Wind” and the JFK assassination in 1963, so the bull market is defined and embraced with a delay. Alternatively, the 80s, as we commonly recall them, were in full swing until Fast Times at Ridgemont High hit theaters on the same Friday in August 1982 that kicked off an 18-year cross-generational stock market rally. never started to move. So a new bull market is underway after the likes of Bank of America and Bespoke Investment Group last week met the simplest criteria of the S&P 500 falling 20% from its October bear market low. When I declared that there was, it was only temporary. It will be a touchstone for a series of changes that have been going on for some time. The situation was set just as inflation peaked, fears peaked, and the seasonal factor turned around, with what appeared to be a climactic wave rushing toward the October trough. Here’s what I had to say at the time: The fourth-quarter rally in stocks paused in mid-December, but picked up again heading into January. That’s when a series of rare momentum and breadth indicators kicked off, with the most abused stocks of 2022 returning to their roar. Around that time, I didn’t claim that all was well, but wrote about “Bold Bull Claims Being Made Against U.S. Stocks — Something Many Haven’t Spoken Yet”. A few weeks later, the S&P 500 ended the first quarter above its rising 50- and 200-day moving averages, after a mini-crisis at local banks briefly panicked markets. However, this was not achieved during the period. Last summer it rebounded 19% to its current level near 4300. Since then, the index has been comfortably above those trendlines (in fact, it’s overbought in the short term at the moment and is just a little bit above the trendlines). And while the breakthrough in recent months has been heavily taunted by six companies’ over-reliance on huge, expensive growth stocks, that didn’t appear to be a fatal weakness from here. And in any case, the strength has partially increased this month, with the equal-weighted S&P outperforming the standard index by 1 percentage point so far in June. This is in no way intended to claim credit for calling for market recovery. At every stage of each market assessment, the ambiguity of the situation, the risk of failure, and the still-flashing leading indicators of recession alluded to, and the view contained more nuance than conviction. This review simply points out that the onset of a potential bull market is a process, not an instant, that will occur as the weight of the evidence gradually shifts in favor of the optimists. So what do we do? As the BofA detailed in a report on Friday, it had declared the bear market since the 1950s “officially over,” with the S&P 500 index falling to 92% after crossing the +20% mark from its trough. continued to rise over the next 12 months with a probability of . It’s a pretty good signal that the worst is over, but it’s not foolproof. The massive post-9/11 stock price rally in 2001 was a vicious fake, and fell to new lows for much of the following year. The rising phase after Lehman Brothers also reversed sharply in 2008 and 2009. A painful exception to a very encouraging rule. Even when a new bull market starts, it doesn’t necessarily aim for another big rally in a timely fashion. After the S&P’s initial 20% rally, forward returns remained average over the next three months, but clearly exceeded typical annual returns over a 12-month span, according to Bespoke Investment Group. It is said that there is Several indicators of investor attitudes crossed the 20% threshold last week, at the same time as a shift from stubborn caution to decidedly optimism. The Association of Individual Investors weekly survey saw the largest increase in bullish respondents since the week of November 2020, when positive results on the coronavirus vaccine were announced. Interestingly, that was 8 months after the major market low (the same spot as it is now). Markets rose steadily in the following year, perhaps with much more policy stimulus help than is available today. “Sentiment suggests FOMO as AAII is well below complacency levels,” said Steven Suttmayer, technical strategist at BofA. [fear of missing out] Last week’s bullish figure of 45% can only be seen in conjunction with market conditions. In a bear market it’s an anomaly, but against the backdrop of a bull market such levels of optimism are fairly routine. A 75-degree day in New York in January is deceptively warm and sure to return to normal soon, but June temperatures will be perfectly mild and unremarkable, ending below 14 last week. So is the CBOE Volatility Index (VIX). This reflects the relative calmness of the S&P 500 itself, the offsetting push-pull of market divergences, the passage of a major potential stress event (debt ceiling), and weak hedging demand in the eight months following market lows. It reflects. 14 is “too low” in a bear market Medium in a bull market Bullish headwinds are blowing None of these dictate agreement on a new sustained uptrend underway Economy is showing resilience We are showing, but we are slowing down in many areas. Even with stable economic conditions and modest growth, it’s hard to tell whether Wall Street can fully escape the threat of a “late-cycle” recession. The Federal Reserve’s “higher in the long run” message about interest rates is digestible for now, but it remains to be seen whether the situation will continue. And even if this is a bull market, there’s no denying that it’s a pretty poor starting market, both in terms of profit size and participant breadth. I’m saying here that the relatively mild bear market reset, if it ends, simply means that future stock returns won’t be as generous as they’ve been after the deepest recessions. I have been wondering if it means And in the short term, as I mentioned earlier, we have to deal with the CPI release, the Fed decision, the sometimes confusing June option expiry, and a weakening seasonal tailwind next week. The market is slightly stretched and probably rising in the resistance zone. With all that in mind, there’s not much risk that your sturdy, helpful wall of worry will crumble anytime soon. But for now, we have a masterpiece that fills half a glass. The S&P 500 has built a cushion to absorb routine declines without jeopardizing the broader trend. The index is exactly where it was two years ago, even though nominal U.S. GDP has risen by 15%. Earnings forecasts for next year have risen since February. The AI frenzy, even if it ultimately proves to be overkill, creates a certain amount of excitement for the unbridled growth themes that bull markets require. And unlike 2022, the “don’t fight the Fed, don’t fight the tape” rule no longer seems to clearly favor the bears, with the Fed likely nearing its destination and the tape improving. ing.
