According to experts, the way to scare a bear is to make noise while rising up and to make yourself look bigger. Sure enough, a vigorous equity rally to start the year — amplified by brutal gains in some of the riskiest and most-hated stocks — has really sent the bears running and the bulls with only half of the total bears than expected. Made more powerful – Market losses now recovered. A week ago, the setup went like this: “The S&P 500 is up more than 6% in the first four weeks of the year, benefiting from a reversal of intense defensive positions and is now sitting directly on a downtrend line. Record high, Fed With tough tests at the Reserves meeting as well as earnings coming in from the biggest stocks in the market.” For now consider the tests passed. The S&P gained 1.6% last week, even after slipping 1% on Friday. Fed Chair Jerome Powell expressed his desire to prove the economy can slow without increasing unemployment too much, declining clear opportunities to scold the market for its growing optimism about such a prospect in his press conference. – Can gently descend to the ground. Friday’s spectacularly strong jobs report lifted Treasury yields slightly and led some to reconsider bets that the Fed would cut rates later this year. Yet the bigger picture is that last year the bears were able to lean firmly on the Fed in a slowing economy and track bond prices into a relentless grind — while now they’re slowly nearing their predicted destination of 5% lower. The slow Fed is facing a coast – term rates in an economy that is stronger than feared, and stocks and bonds are temporarily breaking above those declining channels. It is all a delicate interplay, the development-policy equation can certainly go either way from here. But the fact remains that inflation in decline from very high levels is one of the more favorable backdrops for equities through history, and in a market that may bottom out in classic fashion during October and before the midterm elections. Is. Technical strength of the market By the way, the technical characteristics of the market are winning for the bullish reason. The S&P 500’s 50-day average has crossed its 200-day average, the index has made a new “higher high”, the percentage of stocks at a new 20-day high finally gave some pretty rare signals. Moving to trigger a possibly significant advance. Reassuring, even if the market could use a rest and a cooling-off phase in the short term. Some chart readers are now giving the market the benefit of the doubt on this basis, and even those who aren’t are noting it. .SPX 1Y Mountain S&P 500 1-year JPMorgan technical strategist Jason Hunter, who was more bullish near market bottoms late last year, yet more cautious as the S&P 500 nears 4100 He added: “From a pure chart-based perspective, the quick S&P 500 index rally feet into the upper end of our anticipated resistance zone and the recent bullish long-term signals like the golden cross are clearly those kinds of things.” are not what we expect or want to see in the early weeks given our 2023 outlook.” Yet the makeup and atmosphere of the rally has been such that almost no one is comfortable with the move: unprofitable and heavily shorted stocks bursting from the rubble of two years of collapse; Last year’s winners were truncated; Stampede into buying speculative upside call options. The crash of the iShares MSCI US Momentum Factor ETF (MTUM) relative to the broad market reflects part of this dynamic. The important detail here is what types of stocks ended up in this momentum basket: Recent relative winners, coming in 2023, meant heavy, defensive-style stocks. MTUM is now 60% health care and energy. It is heavily underweight in the tech and consumer cyclicals. Too Much Trash? That’s why quantitative investors ride this factor — often while shorting low-quality stocks — have been thrashed emphatically. Goldman Sachs reports that Thursday saw the heaviest day of short-covering activity by hedge-fund clients in a decade. The reawakening of once-bubbly unprofitable speculative-tech stocks as well as exciting options trading this year has the “tsk-tsk” crowd lamenting the return of carelessness and fun. Funnily enough, in healthy markets such action does not dominate for long. Here Deutsche Bank shows mega-cap growth and net call-option buying ramping up above any readings since 2022, though still unremarkable by 2020 and 2021’s frantic standards. A high-beta “junk-stock” rally is associated with it, so this “last in will first” element by itself does not disqualify a rally from serious consideration. There’s also a more-quiet outperformance by industrial-metals, homebuilding and other consumer-discretionary stocks, as well as continued leadership from the equally-weighted S&P 500, a clue that the broader list of stocks is doing better. Tighter credit spreads also provide assurance that the macro picture is not eroding fast enough for bears to cash in their bets on a faltering economy yet to come. Of course, in order to log these gains, the market had to seize on pessimistic sentiment and conditions, sentimental declines in bond yields and the dollar, and muted expectations on earnings, which allowed the tape to largely mask unimpressive corporate results. given. Arguably, much of that fuel has been burned, though sentiment is hardly buoyant by most long-term measures. The still-heavy valuations at the top are certainly a factor that is hard to characterize as a weapon for the bulls after the recent appreciation of the index. Certainly at the level of the S&P 500, 18-times above forward earnings estimates is a sought-after hodgepodge to deliver that much return. Yet I continue to point out how overwhelming the market is. The six largest stocks by market value (Apple, Microsoft, Alphabet, Amazon, Berkshire Hathaway, and Nvidia) account for a combined 21% of the index and have average price/earnings ratios above 30. The equal-weight S&P is close to the long-term average at 16, and mid-cap stocks are still modestly valued compared to their history. Certainly, the risk/reward assessment here appears a bit more balanced at the midpoint of the entire 2022 bear market decline, with the tape more sensitive to unwanted news at 4136 on the S&P 500, which rose 600 points in October. was less The S&P 500 is compounding a 120% annualized rate of return so far in 2023, so yeah, expect some give-backs and gut-checking. A new trading range developing well below the all-time high would not be surprising. The confusion and debate about the leading indicators of recession won’t go away anytime soon. Markets often relent because a “soft landing” seems plausible even when one is ultimately not achieved. Jay Powell speaks on Tuesday and could easily choose to sharpen his rhetorical edge at a “high rate for a long time.” Yet it’s hard to dismiss that nine months ago when the S&P was at this exact level in early May, it was 400 basis points ahead of the latest Fed tightening, $500 billion (and counting) before the Fed. Was rolling off the balance sheet and projected gains for this year and next ahead of the 10% drawdown in the S&P 500. There is no doubt that the worst-case scenario doesn’t cost the price, but right now it is the bears who need to regroup.
Bears sent running as stock market breaks downtrend and overcomes key fundamental test
