Investors,
After being wrong about the market all year, bears are now shifting their commentary & stating (rather shouting) that the market is in a bubble. Rather than admitting that they were wrong about market dynamics and reflecting about where the bear thesis took a left turn, their cognitive dissonance has only caused them to scream louder.
For example, I didn’t become outright bullish until May’23 when I noted the following:
There was sufficient evidence that the Federal Reserve had backstopped the banking system and their monetary intervention was working.
A substantial amount of stocks in the S&P 500 were producing new highs on a 20-day, 50-day and 52-week basis, outweighing the number of stocks making new lows on each timeframe.
The Dow Jones, S&P 500 and the Nasdaq-100 were all trading above their respective 200-day (and 200-week) moving average cloud.
Indexes were making higher highs and higher lows for 6 months since Oct.’22.
There was substantial evidence of disinflation, which is notoriously a great environment for equities to perform well.
There was substantial evidence of stronger than expected economic data and better than expected corporate earnings for Q1 2023 earnings season.
Even in March, I predicted that a banking crisis (if contained) would cause the Nasdaq-100 to outperform all of the other major U.S. indexes:
Since then, the Nasdaq-100 has gained +34%. Thirty-four percent!
Objectively, regardless of the macro uncertainties that laid ahead, it was reasonable to become bullish on equities. Even if investors had waited until May 2023 to buy stocks (I hadn’t), those investors have generated substantial returns if they simply bought the S&P 500. An investor bought SPY 0.00%↑ on the 5/15/23 open is currently up +11.1% on their position in a mere 2.5 months, outpacing the average calendar year return for the S&P 500 in a post-WW2 era (roughly +9% per year).
Investors who were willing to change their mind, adapt, and act have been rewarded.
Bears who have continued to shout at the market (and bullish investors) have been forced to sit idly by as the market grinds higher. I’d be upset too.
This is why their new complaint is that “the market is in a bubble!” Unable to complain about how the market wasn’t going down, they’re complaining about how it’s going up too much and too fast! Well that’s convenient…
A bubble? Really?
The S&P 493 (extracting the Magnificent 7) is trading at a 17x price/earnings multiple, in line with the historical average valuation of the market.
A bubble? Really?
Look at the Ark Innovation ETF relative to the S&P 500 (ARKK/SPY):
2020 & 2021 were bubble environments, but it’s clear that the market is not currently in a bubble today, on the aggregate.
Are certain stocks in a bubble? Of course! Every market environment has high-flying stocks with hype, narratives, and prices detached from fundamentals. While some individual stocks might be in bubbles, there are three things to note:
Those bubbles could continue to inflate.
They likely won’t end well, individually.
The occurrence of individual bubbles doesn’t mean that the market is in a bubble.
Some stocks are elevated. The stock market is expensive, but not obscenely expensive.
There is no bubble (yet).
In the remainder of this report, I’ll cover the following topics for premium members:
Ark Invest Fund analysis, focusing on ARKK, ARKW, and ARKF.
S&P 500 under-the-hood metrics
Earnings analysis (so far).
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