Since the start of 2022, 13 months ago, the S&P 500 Index has trended down. But, over the last two weeks, the previous short term high reached at the end of 2022 has been exceeded, and the downtrend channel has been broken:
So is that it? Is the bear market over? Are we in a new bull market?
From the low on October 10, 2022, the SPX is up slightly over 20%. But a bear market rally of 20% is not unprecedented.
During the four months starting in October 2001 the SPX was up just under 25%, at the tail end of the “dot com bust” recession:
But then, from March to October 2022, the market dropped 35%.
The point: bear market rallies do not guarantee that the bear market is over.
But wait, you say: interest rates have peaked, so all is good from here! The Bank of Canada has indicated they are pausing, but the Fed has made their position very clear: until inflation is under control, there will be no rate cuts. Most likely they will raise again in March. So no, we are not out of the woods yet.
But wait, you say: the employment report on Friday was great! No, it wasn’t. The BLS adjusts the numbers for population controls. When you adjust for population, Household employment only rose by 44,000 in January. The readings were much softer than they appear.
Yes, I know, Bitcoin was up over 35% in January. It looks great. But again, it appears to me to be a bear market rally.
So, my position remains unchanged. I hold fixed income, and cash, and I’ll wait to see what February will bring. My guess is that the peak happens in the next two weeks, and then we are back to the bear market.
We shall see. See you next week.
Bear Market Rally Almost Over?
by JDH on February 4, 2023
Since the start of 2022, 13 months ago, the S&P 500 Index has trended down. But, over the last two weeks, the previous short term high reached at the end of 2022 has been exceeded, and the downtrend channel has been broken:
So is that it? Is the bear market over? Are we in a new bull market?
From the low on October 10, 2022, the SPX is up slightly over 20%. But a bear market rally of 20% is not unprecedented.
During the four months starting in October 2001 the SPX was up just under 25%, at the tail end of the “dot com bust” recession:
But then, from March to October 2022, the market dropped 35%.
The point: bear market rallies do not guarantee that the bear market is over.
But wait, you say: interest rates have peaked, so all is good from here! The Bank of Canada has indicated they are pausing, but the Fed has made their position very clear: until inflation is under control, there will be no rate cuts. Most likely they will raise again in March. So no, we are not out of the woods yet.
But wait, you say: the employment report on Friday was great! No, it wasn’t. The BLS adjusts the numbers for population controls. When you adjust for population, Household employment only rose by 44,000 in January. The readings were much softer than they appear.
Yes, I know, Bitcoin was up over 35% in January. It looks great. But again, it appears to me to be a bear market rally.
So, my position remains unchanged. I hold fixed income, and cash, and I’ll wait to see what February will bring. My guess is that the peak happens in the next two weeks, and then we are back to the bear market.
We shall see. See you next week.