The bull market continues to be respected. Most investors are now giving, some more grudgingly than others. Starting with the S&P 500’s 20% gain for the year, averaging more than one record high per week, the index survived unscathed through most of what should have been a scary September. Then there’s the upside progress in the third quarter without the super-cap tech leader — the S&P 500’s equivalent weight has lost nearly 9% since June 30 and the Nasdaq 100 is up less than 2%. And note the way the tape immediately processed the Federal Reserve’s half-percentage rate cut this month as a de-facto de-aging treatment for what appears to be an aging expansion. In the eight trading sessions since, the market has refused to reverse the assessment. Since the Fed’s decision, data on jobless claims and consumer confidence have been reassuring, while data revisions have lifted previous estimates of GDP, personal income and household savings rates for the previous quarter, indicating that the economy has never been close to stall speed. popular reliable. Longer-term Treasury yields have risen sharply since the Fed’s move, with the 10-year rising from 3.62% to 3.75%, both in line with the historic post-rate cut pattern and reflecting a relaxation of macroeconomic fears. A tame PCE report on Friday blessed the market’s conclusion that inflation was undermining while blessing the rationale for the Fed’s “peaceful rate cut”. .SPX YTD mountain S & P 500 YTD Oh, then the Chinese government fired a barrage of stimulus measures last week that caught the skeptical business community by surprise, sent China and China-levered stocks flying and sketching the new fiscal reality. and monetary authorities in the world’s two largest economies are actively promoting growth. This is when the credit market is very strong and the company’s profits are increasing. Scott Chronert, Citi’s market strategist, concluded: “The market has clearly reacted positively to the Fed’s recalibration policy for falling inflation … this year is likely to be in the high-single to some low-double digits, which is usually in line with the Fed holding steady relative to path of food funds has historically helped put a higher floor on equities usually not heavy.” Where this positive stacks up, of course, is that the market has already guessed all of this and is well and fully priced in for the Fed’s impending bankruptcy. Overvalued? The burden of proof lies squarely with the bears, and most likely will make the argument that current valuations leave little room for bad news, increasing the market’s vulnerability to “growth scares” or whatever. arrive. New money into the S&P 500 today pays 21.6 times projected earnings over the next 12 months, slightly below the 21.8 times the previous market peak in mid-July that gave way to some sharp pullbacks and bumpy rotations. out of the mega-cap tech leader. The idea that the excess value is all in the giant Magnificent Seven is not true, 493 other stocks as a group sit above 18 times. Of course, prices don’t say much about the market’s fortunes over the next several months or so, and multiple compression tends to be less affected by Fed easing and higher incomes. Still, initial prices have something to say about long-term returns and the market’s ability to absorb unexpected news. Goldman Sachs here plots the S&P 500 forward P/E at the time of each rate cut early in the cycle. We are now higher than the year-2000 cut. Such an instance becomes relevant as a guide only if the investment-bubble unwinds and the recession is soon in the offing. Remember the brightest precedent – the soft landing of 1995, which is still played as the version of the best results from here – has a fairly low stock in 12 times. That’s not to say the market can’t keep going from here, though it’s hard to find the 24% annualized return investors collected in the five years after the ’95 cut. Bears may point to the first week of the last two months when fears grew, around weak ISM manufacturing and subpar employment data. Both data series await next week. But what is the market oblige with the same move for the third month in a row with such a mini-panic, given that selling to them does not look smart in retrospect and even after the Fed has uncorked easing the first move? Time to breathe? Of course, a breather would be beneficial for the broad market, with the S&P 500 up 11 of the past 15 days. Although the sentiment is not quite heady, retail investors are quite full with stocks and bullish call option volume is again starting to dominate the flow. Internal oscillations usually send a friendly macro message – good consumer, bank and industry cycles. But Nvidia’s erratic actions, including three straight months of making lower highs since the peak in June, and the general lack of secular-growth leadership can make the tape a bit more fickle and prone to mishap. If the CBOE S&P 500 Volatility Index rose 1.6 points to 17 on Friday with the S&P 500 dead flat and the majority of stocks higher it could reflect broad geopolitical unrest or the fact that the US election is pulling in the VIX 30-day lookahead window. In any case, this is a significant departure from the strength story told by the S&P 500 itself. John Kolovos, chief technical market strategist at Macro Risk Advisors, remains with the call that the S&P 500 could go higher to 6000, up 4-5% from here, although overlaying caution also has attention. “The biggest concern here is that there is still a fear of preventing escape velocity,” he said. “Bitcoin staying at $70,000 is one example of muted risk appetite. The historical tendency for volatility to rise to extreme levels around elections has been messed up. There is no muted expectation and risk appetite is connected as a direct negative for the market trajectory. Expert target The median Wall Street strategy for the S & P 500 is currently below the current level of the index, usually no one sees it at the top of the market.
The Bull Market enters the fourth quarter with almost everything running
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