June 27, 2023

While the 20% qualifier for the S&P 500 to enter a new bull market has been met, there is additional evidence supporting that a transition from the 2022 bear market to a young but new bull market has begun.

• In addition, demand for equities continues to rise, forming a series of higher highs and higher lows since October, while market leadership has been cyclical.
• Bull markets are not linear, however, and with the index well above its uptrend, we suspect a potential pullback or pause is likely (see below).
• Although it may be early and we would like to see an end to the Fed’s interest rate hikes, more inflation easing, and greater breath/participation in the stock market, there is a strong foundation for calling the end to the recent Bear market
• Of course, we don’t know when the next bear market will arrive, but based on history, there is a good chance it doesn’t show up for quite a while. Since 1957, the average S&P 500 bull market has lasted 59.2 months and produced an average cumulative gain of 169.3%

Some reasons for concern?

Markets Facing Oversold Conditions Amid Rate Hike Concerns—and Now Putin’s Reign

• Markets continued to sell off last week as Federal Reserve (Fed) Chair Jerome Powell’s seemingly unwavering commitment towards restoring price stability, and keeping rates higher for longer, offered an excuse to take profits from the market’s formidable end-of-the-quarter performance.
• As the market inches closer to oversold levels, investors and traders alike are facing a challenge to see if there are catalysts to entice cash back into slightly less frothy markets. The potential for another rate hike on July 26, which could be accompanied by still “hawkish” commentary from the Federal Open Market Committee (FOMC), could keep cash on the sidelines until there’s more clarity on the path of inflation. The Fed’s preferred inflation gauge, the Personal Consumption Expenditures Price Index (PCE), will be released on Friday and that could be especially important if it suggests inflation is cooling at a faster pace.
• A potential headwind for equities this week, however, is the potential for institutional rebalancing of portfolios with selling of equities, and a corresponding move into fixed income. There has been much speculation that managers will be compelled by portfolio mandates to adjust allocations accordingly.
• The unknown backdrop to this weekend’s events in Russia has markets monitoring Vladimir Putin’s next moves to establish his leadership amid a raft of questions as to whether he’ll be able to regain his increasingly weakened power base.
• With the official opening of earnings season on July 14, markets may have to wait for earnings reports, coupled with guidance, to resume their respective positioning. So far, the rallies have been strong but short-term in duration. For the bull market to endure, there needs to be a viable underpinning of strength that propels a broad swath of names within the S&P 500 to cross their 200-day moving average.  A strong bull run typically sees approximately 90% of the index crossing over the 200-day moving average. Today it stands at 56%. 

However, the resolution of the above concerns could provide a catalyst or a cure for a slowing bull market, especially if stocks were to move into oversold territory.

As always, please do not hesitate to contact me if you have any questions or concerns.