How Low Can We Go?
Investors,
The S&P 500 has fallen -5.6% since it made ATH’s on March 28th, 2024.
The Nasdaq-100 has fallen -7.7% since it made ATH’s just one week earlier.
The Dow Jones is down -4.8% since it made ATH’s on March 21st, 2024.
Amidst a combination of geopolitical tensions, earnings uncertainty, accelerating inflation, and seasonal dynamics, stocks are facing pressure…
But so are Treasuries!
In fact, the S&P 500 relative to U.S. Treasuries (SPX/TLT) has made new ATH’s since the stock market peaked near the end of March 2024:
Yes, SPX/TLT started to fall in the latter half of this past week, perhaps reflecting more of a risk-off environment; however, there’s nothing about the current pullback that indicates that the 4-year uptrend in SPX/TLT is over.
Still, the YTD performance & divergence between stocks and bonds is clear:
S&P 500 $SPX: +4.18% (annualized +14.5%)
U.S. Treasuries $TLT: -8.7% (annualized -31%)
From my vantage point, while it’s concerning to see inflation reaccelerate, much of this current consolidation in the stock market appears to be psychological selling.
After a massive 6-month rally where the S&P 500 gained +28.3% in 104 trading days, isn’t it logical that the marginal buyer became exhausted and that an eventual catalyst would spook the market enough to result in a standard correction?
This was a similar argument that I was making in August & September 2023, when the market started to consolidate after a banner start to the year and gained +20.8% in 94 trading days between March 2023 and July 2023.
So this current market environment has gained even more in roughly the same amount of time and now we’re experiencing another normal & healthy pullback.
I don’t know about you, but I certainly regret not buying more assets in August - October 2023 and the hilarious part is that I was buying assets during that period.
So how do I know that this is another one of those “normal & healthy” pullbacks and not the beginning of the end of the bull market?
I don’t. No one does.
I can have conviction that this is “normal & healthy”, but only time will tell if I’m right.
In this report, I’m going to explain my thought process about how deep this pullback can go and to fundamentally assess if there are any major causes for concern about the sustainability of this bull market.
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