In the current financial cycle, there is a bull market at its peak. A lot of “first time” and “extraordinary” in the last few years is the fact that this bull leaves some truly unique calls. Last Thursday, 87% of S & P 500 stocks outperformed the index itself, which Goldman Sachs called “the best in the history of our data set.” This came after six months in which the weakest benchmark stocks managed to beat the S & P 500 of any half-year period on record. Similarly, Strategas Research said it was the best-ever measure of the first decline in New York Stock Exchange news on any day that the S&P 500 posted a loss. . The loss, just 0.8%, but the biggest daily decline since April, came after the squishy CPI report opened a clear path to the rate of The Federal Reserve cut in September. The most profound action was in the shift of gear meltdown to the Big Tech-vs.-small-cap regime, which had become overpowered. The Russell 2000 jumped 5.5% while the Nasdaq 100 fell more than 1%. Broadly speaking, Renaissance Macro says the one-day performance of the Russell 2000 against the larger Russell 1000 was one of the four largest since 1980. the last three, all happened near the high level of the low market – in 1987. , 2009 and 2020 – instead of having major semi-annual indexes to enter new all-time periods . All of these unusual or unprecedented aspects of last week’s action are tied to what investors have been preparing for months: a deep increase in market value within a solid group of large stocks. This configuration is the simplest way, mathematically, for the number of stocks to differ so abnormally from the S & P 500. Remember, the market has gained this way in part because the products of the highest financial value – with the best reward. profile and sexiest secular dynamics – they are also among the most expensive and most protective in a period of high uncertainty and a lack of reliable earnings growth. Conventional but untested wisdom holds that market “expansion” should be accompanied by Fed rate cuts and the democratization of interest rate growth. It seems a bit neat and tidy, and history is not clear on such a sudden change of market choice. But these days conventional wisdom is being turned into strategies that already have highly cyclical business models. And so we get days like Thursday, which seem reasonable and perhaps exaggerated. The Bull Market is 21 months long. However, it is not only the recent phase that has made this cycle unique. The ongoing bull market, which began in October 2022, has now lasted 21 months, half the length of all bull markets since 1877, according to Fidelity Investments. Its average of 57%, measured by the S & P 500, is almost half of the post-1929 average as well. And it’s the only one (at least in the last 70 years) that started with the Federal Reserve in the middle of a tightening campaign. (This is probably coincidental, as the first bear market began to grow even before the rate hike in March 2022, which contradicts the previous decades when stocks tended to collapse in the first months of the program (which continues to strengthen.) The S & P 500 posted its best start to a presidential election year. Other “macroeconomic” rules are also failing: The 2/10th of a year Treasury yield has been reversed (with short-term yields exceeding long-term yields) for two years, long at least without recession. We can clearly guess why the interaction of market rhythms and superpowers has often exceeded the limits of historical trends in the last few years. The forced reduction of the stock market and the multi-week stock market recession was achieved by a seasonal recovery helped by a large stimulus, leaving household finances stronger at the end of the economic crisis than in the beginning. The trend of the largest technology platforms to manage and promote the benefits of their network has been the point of the decade, which allows the winning stock to eat a large part of the money. And, of course, the explosion of investment growth in AI funds around the moment that the stock fell and the price increase towards the end of 2022 added to the growth of the market, compensating for a lot of weakness in other areas . It also argues for a certain humility to paralyze the next market action, following the recent trend of breaking trends. What we can say for sure is that this is a bull market, and no recent extremes or anomalies can defeat the wisdom of respecting a solid uptrend. It is also reasonable to note that a strong first half of the year is often followed by a strong second half, and that the annual average is good for the market (as opposed to the average for all years). sees a profit of over 20%. Working against these comforting facts, at least tactically, is the fact that July’s historically strong first half is over, with the year’s gains tapering off from here. And while the annual conditions of the election have not worked so far this year, most such years have difficulties and weaknesses after the summer. Circulation has legs? Whether last week’s drastic change in fortunes favored the big losers at the expense of some winners is unclear. Of course, an aggressive, wide-ranging burst by very small stocks is unlikely to be a clear fluke. Such things tend to have some legs for at least several weeks, according to the many technical studies that make it around. As the chart below of the Russell 2000 relative to the Nasdaq 100 shows, the rubber band was very stretched, and the strength of a single reversal could remain the tail behind the -little laggards. But it also suggests that those seeking permanent change in market structure face a heavy burden of proof. As noted above, a similar one-day breakout of the sub-par performance last Thursday occurred just as broad, destructive price movements were peaking, not in the market. calm bulls looking to cut the Fed rate to keep things moving. The best type of first rate cut is “discretionary” in a healthy economy that is intended to be gradually adjusted to maintain and expand the expansion. Slower and shallower cycles are historically stronger than faster and deeper ones. Indeed, this situation still exists. There’s no doubt that anything close to it is overpriced, and the S&P 500 is pushing 22 times earnings as well. Although the market can maintain absolute value as yields grow, as they have, and the Fed is no longer in a tight spot. Bottom line, the S&P 500 is strong but a little too much, with a sense of pessimism and an unknown recession still underway. An emotional high is similar to a bull market, but is sometimes associated with a pause or pullback. (A firm hike in 2021 is a notable exception to ignoring extended sentiment readings.) It’s fair, too, to wonder whether the narrow leadership and market insiders will be resolved by a round of no-shows. with pain from major to minor, major to quality. , crowded into stocks that have been ignored, as the Fed’s rate cuts are being overbought. This may seem like a pretty good idea, and it probably appeals to most investors who have been frustrated by the market’s divergence from the hard-to-beat S&P 500. Again, anything can happen, as we have seen so often lately.
#Investors #betting #Feds #rate #cut #trigger #shift #overcrowded #undervalued #stocks #bull #market #continues