[Outlook] Can The Bull Market Keep on Kicking? Or Is It Growing Tired?

The Answer May Surprise You! Can The Bull Market Keep on Kicking? Or Is It Growing Tired? The Answer May Surprise You! By Donn Goodman June 23, 2024 Does the stock market (SPY, QQQ & IWM) have more momentum and upward energy to keep making more new highs? Or are the markets running out of steam and need a pullback before going higher? We will explore these questions and a few others in this week’s Market Outlook. Welcome back, glad to have you with us for our update and Big View bullets (and don’t forget to watch the weekly video that follows which is most insightful). A difference of opinions. Last week a friend of mine who I used to do business with at my old firm called me to discuss the market. He is certain that we are about to go through a correction that may turn into a meltdown. His view, and several others that I follow, is that the markets are setting up for a very big correction, much more than the normal 10% that we go through almost yearly. He gave me all the reasons that he believes (and gets from other writers, especially the numerous doom and gloom newsletters that exist only because they are so negative). He rattled off issues that may exist with the stock market, (especially the NASDAQ 100, QQQ) that included “the market is too expensive, selling at elevated price to earnings ratios, price to book, etc. Or that the market is being supported by just a few stocks that are driving all the returns” (We addressed this in last week’s Market Outlook, [if you have not read it yet, you can access it here](). My friend, an advisor, has a significant portion of his clients’ assets parked on the sidelines in conservative interest bearing instruments. His belief (and many others especially negative newsletter writers) is that we will get a 20-25% move down and hopefully be able to buy back into the market at 2022 prices. My opinion is this is not likely to happen. PLEASE, go back and review my recent Market Outlooks and reread and review all the charts and graphs, especially those that are put out by Ryan Detrick of The Carson Group that show what happens if the first 3, 4 or 5 months are positive in any given year and what typically transpires the remainder of the year or next 12 months. Additional charts show what occurs after the year starts with a 10% + return through May, especially in an election year. All of these can be found in the [Market Outlook archives within Big View](=). Looking at the Bullish and Bearish cases. I did some additional research to wade through the above potential issues that my friend and others have been suggesting. I found lots of evidence that does not support that we will see a meltdown, as they suggest. I will share some of the rebuttals with you in this column. While I do believe the market has gone up well above expectations in the first half of this year and may certainly be due for a normal pullback or healthy correction, my views are supported that earnings have been stellar, earnings growth well above expectations, and the markets are fully expecting an easing from the Federal Reserve which should help to sustain market multiples and justify where the market sits today. These facts should help keep the winds at our backs and not force any major crash, at least anytime soon. The markets continue to make new highs and belie any of the negative soothsayers. See an illustration from Friday below: Exploring the Pros and Cons of why the markets may continue to move higher. First, the reasons we should/could see a healthy, normal pullback (not a meltdown): “Sam Stovall, CMT, believes the markets are in for at least a 5% correction” I have been a longtime follower of Sam Stovall, currently the Chief Investment Strategist of CFRA Research. CFRA is an independent financial research firm and Sam is a professional I consider to have high integrity. I saw Sam speak a few times at conferences I had attended over the past 25 years hosted by major brokerage firms like Morgan Stanley, UBS and Wells Fargo. Sam is now Chairman of the Investment Policy Committee where he focuses on history, valuations, and industry momentum strategies. Sam is the author of The Seven Rules of Wall Street. Before CFRA, Sam was with S&P Global for 27 years. I read his work and trust his opinion. Sam believes the stock market is in for a correction as a trio of unfavorable factors weigh heavily on equity prices. He believes that we are in a bearish setup in interest rates, inflation and stock valuations. His thoughts focus on these factors. Inflation, he says, is declining but still above the Federal Reserve’s 2% target leading central bankers to project just one rate cut by the end of the year. He continues with the fact that higher rates have triggered the longest-ever inversion of the 2-10 Treasury yield curve, the bond market’s famous gauge of a coming recession. This indicator has been a reliable recession signal throughout history and economists have said that this time likely won’t be different. (This writer believes that if the Government was not pumping so much money into the economy through two stimulus acts plus the expansion of money supply we would already be in a recession). Stock valuations, according to Stovall, are also high by historical standards, which also contributes to his prognostication of a future negative pullback. The S&P 500 is priced at a 32% premium compared to its average price-to-earnings ratio over the last 20 years. Tech stocks, which have dominated the market in recent years, are currently trading at a 68% premium. “I think we’re really stretched, and we have to see some upward revisions in earnings estimates in order to justify these valuations” Stovall said in a recent interview with CNBC. “It has only been tech that’s been outperforming the market. I sort of feel that this is a jumbo jet that’s flying on one engine, and you wonder how long it will stay aloft” Stovall warned. He believes the S&P 500 benchmark index is poised to dip at least 5% in the very near future. One recent illustration which would support Sam Stovall’s view of an impending correction. See below: Exposure plans. "Per latest JPM institutional weekly survey, there's virtually no risk appetite to deploy fresh capital into equities. Investors continue to show no love for stocks in 2024." Another concern of Wall Street analysts is that only the biggest mega-cap NASDAQ stocks are fueling this rally. They cite charts like those below to point out why the market is faltering, and that negative breadth does not support the current market valuations. See chart below: Nasdaq-100 divergence (I). "The Nasdaq 100 continues to notch record high after record high. Many of its stocks are not only lagging, but they're falling to monthly, quarterly, or even yearly lows and below their 10-, 50-, and 200-day moving averages." Use the links below for this week’s video and continue reading about: - A prediction that the market will rise 4x by 2030 - Record growth fund inflows - Most and least popular months for annual market peaks - Other views on valuations, earnings, and more - The Big View Bullets - Geoff’s weekly video market analysis [Click here to continue to the FREE analysis and video.]([Click here to continue to the PREMIUM analysis and video](=). Best wishes for your trading, Donn Goodman Every week we review the big picture of the market's technical condition as seen through the lens of our Big View data charts. The bullets provide a quick summary organized by conditions we see as being risk-on, risk-off, or neutral. The video analysis dives deeper. Risk On - [Volume patterns]() improved on balance across the four indexes. (+) - Looking at the number of [stocks above key moving averages]( in the S&P, there was significant improvement across the board with everything now in positive territory. (+) - Value stocks are still underperforming growth but did improve on a relative basis, however, both are in bull phases and remain positive. [Growth stocks]() are vulnerable to continued mean reversion that we highlighted last week. (+) - Interest rates backed off this week holding onto an [accumulation phase]() and working off overbought status. (+) - Falling inventories contributed to Oil being one of the [strongest performers]() and reclaimed its bullish phase. (+) Use the links below for this week’s video and continue reading about: - A prediction that the market will rise 4x by 2030 - Record growth fund inflows - Most and least popular months for annual market peaks - Other views on valuations, earnings, and more - The Big View Bullets - Geoff’s weekly video market analysis [Click here to continue to the FREE analysis and video.]([Click here to continue to the PREMIUM analysis and video](). Best wishes for your trading, Keith Schneider CEO MarketGauge P.S. When you’re ready, here are 3 free ways we can help you reach your trading goals… - [Book a call with our Chief Strategy Consultant](, Rob Quinn. 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