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Who Are You Going to Believe?

Everyone writing or speaking has an agenda. What about you, Robert, I hear you ask? Of course, I do too. As much as I love reading and writing about markets, I want to help investors think differently about what they're being told and what is going on in markets. And if someone needs help with the management of their wealth, I want to them speak with us. Yes, there is a love of markets, and there is a love of brand awareness too. Now that we've got that out of the way, let's get into it.

The stock market confirmed a new bull market on 08/10/2023 by the arbitrary 20%+ rally that was preceded by a decline of 20%+. The previous bear market experiences a peak-to-trough decline of 25.4% and lasted 292 days from 03/01/2022 to 12/10/2022.

Yet we continue to hear about the corporate earnings slump, the prophesised recession by an inverted yield curve, inflation still too high, interest rates too high, debt too high, mortgage repayments too high, and a bear market rally (really, gimmie a break).

If the Fed is closing in on the end of the rate-hiking cycle, and if earnings are almost done with their (relatively modest) decline, it's absolutely possible that the market may have bottomed and that a new bull market is underway.

But it's driven only by the Enormous Eight! Sure. It was. But things are improving on that front. The percentage of stocks above their 50-day moving average reached a respectable 68% last week, meaning the stock price of 68% of companies closed higher than the average over the previous 50 days - a bullish indicator. We're also seeing small and mid-cap stocks reverse their trend too.

Bear-market rallies generally do not retrace more than half of their preceding declines. The S&P 500 cap-weighted index has retraced 64% of the 2022 decline, exceeding all previous bear-market rallies since the 1920s. Technically, from a purely historical perspective, it’s getting more difficult to call this a bear-market rally.

If this is in fact still a bear market rally, it will be the largest bear market rally in percentage terms.

If this is still a bear market rally, it will also end up being the longest bear market rally in history.

With the debt ceiling suspended, bank failure fears subsiding, the Fed pause and recession forecasts pushed out, the wall of worry that has persisted for over a year has finally been torn down.

So how does this pattern compare historically? Bespoke ran the numbers and compared 2023 to every other year since 1928. They calculated the S&P 500’s YTD performance through 22/06 as well as for the rest of the year including its maximum gains and loss from 22/6 through year-end. Here's what they found:

"As shown at the bottom, the S&P 500’s average and median rest-of-year return was right around 11.5%, and the S&P 500 was higher for the remainder of the year nine out of ten times. That’s both well above and more consistent to the upside than the S&P 500’s average rest of year performance for all years since 1928. Additionally, there were only three years where the S&P 500 was not up at least 10% at some point from its 6/22 close, and there were only two years where it declined more than 3.5%. If we don’t finish the year higher from here, it will be a major break from the historical script based on the action we’ve seen so far this year." - Bespoke

Visually, here's how 2023 compares to the 10 years listed above.

Investors can and will no doubt find a chart, data point, or anecdote that will confirm their point of view, bias, or the narrative they subscribe to. The signals are mixed. So, who are you going to believe? The bears, the bulls, the newspaper, the talking head? When the signals are mixed, defer to the market. Right here, right now, the market is telling us one thing and one thing only, and it deserves the benefit of the doubt.


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