Bad News for the Bears: Running with the Bulls and Winning

I know last week’s video was a bit of a downer.  Bringing bads news percolating behind the scenes in the economy that many in the media won’t tell you about.  This week, it’s back to, good news, yes Virginia there is a Santa Claus, and he’s riding his sleigh in a bull market for equities still.  Let’s just retitle the 1976 sports comedy for this week title, and call it “The Bad News for Bears.

We looked at the data behind the data last week to show our followers that the economy is losing momentum quickly. However, slowing doesn’t mean shrinking.

This week there is a few quick hits on the continued bullish setup for stocks for 2025.

Let’s start with the obvious.  As of this writing, the S&P500 was sitting at a closing daily high of 6114, within a few pints of all-time highs made back on my b-day, Dec 6^th. There a few hedge fund and tradingisms that come close to always rules in the stock markets in my book.  Let’s start with the biggies. First, price is truth. You may not believe that price is the “right price”, but the markets are bigger than any one opinion and they collectively believe we deserve to be at or near new all-time highs in the markets.  Here’s a chart on daily SP500 the last few years, since the pivot lows in October 2022.

I’ve drawn a upward sloping channel around the bands weve traded in since and circled a few key lows, like the late October 2023 low when the hysteria was high around recession or duplicate crashes like 1987 or when many EWT, that’s Elliot wave Theorists, panicked and got emotional and biased and decided to stop following charts and start trying to call generational tops. I circled the mid-summer swoon last year caused by the yen carry trade blowup. And regardless of the short term trama, news event, election outcome or goings on, here we sit within a few points of all-time highs.

Even more interesting here’s the daily chart for the last year of the SP500. Upward sloping overall, great returns for 2024 that many missed by being bearish for whatever reason and here we sit.  I’ve even marked the periods in 2024 where the markets traded sideways for a period of time before resuming their upward path.  Try to recall all the events in 2024 along the way, and tell me how, if we are not in a bull market still, how the SP500 went sideways for 45-46 days EXACTLY before breaking out to a new ATH and trending higher for at least 2 months.  And as of this writing, 2/26, Sunday, there have been exactly? Yes, 46 trading days since the last ATH close on Dec 6^th.  And still, I hear most in the media bearish.

Folks, this is what a bull market looks like, a picture is worth millions of words and dollars.  Steve Cohens first rule of trading, never short a new high or buy a new low.  Be my guest, short here near new ATH. Take a shot. Try to be a hero and make a name for yourself, but the odds and history say, “Be long and stay long here”. According to 3Fourteen Research, only 13% of the times since 1950 have these setups led to corrections.

Investors, price is truth and the price says times are good.

The second positive thing for stocks, earnings have been good overall even with higher interest rates and a higher dollar in the 4qth quarter of 2024 dampening some of the earnings leverage that many large SP500 companies have. According to Fidelity, 77% of companies have beaten estimates by an average of 655 bps.  What started the earnings season as 8% growth, looks to be exiting at about 13% growth. And that’s with both higher borrowing rates and a higher dollar in the 4^th quarter.  The good news for the 2n25 is most companies are already cutting forward growth guidance to reflect a stronger dollar.  Investors, having done the money management gig for 30+ years, my experience is that forecasting currency fluctuations is amongst one of the worst things that managements do. If they are now forecasting dollar strength for 2025, the dollar is likely to have already peaked, as we said back in December when others were also hysterically discussing US exceptionalism and a strong dollar. Our opinion back then was the dollar would go lower in 2025 not higher like others said.  Here’s an updated chart on the DXY under Trump 1.0 and 2.0 to date.  So far, there is zero reason to think the dollar will gain strength in 2025 and others are now joining our opinion of a weakening dollar in 2025.

A lower dollar means a few things for your money. First, take your international trip and vacation now and don’t wait because the cost will go up.  Second, earnings estimate for a large part of the SP500 which was massively lagging the markets in 2024 will have a tail wind for revenue and earnings in 2h25. #rd, owning international stocks is timely.  And finally, yes, America is exceptional, but there are times when international stocks do better than US stocks and 2025 is likely one of those years.  We previewed this back in December even going as far as discussing China as likely one of the best asset classes to be in in 2025. So far, that one is looking right as the herd has begun finding reasons to own Chinese equities.

Our favorite overlay of Chinese equities remains BABA under Trump 1.0 and 2.0.  I remind viewers we discussed this theme back in late 4q24 when most in the media were saying what about Chinese stocks? Yep, that word thrown around then was – Un-investable!  And what has China done since then, Hang Seng China Enterprise Index up 34% from Sep’24 lows, and 20% in US$-terms and China monetary policy is easing to boost domestic demand.

Chinese tech stocks as defined by the CQQQ ETF are up +18% YTD as of this writing, that’s while US large cap tech stocks are one of the only sectors lagging the SP500 performance YTD. It’s not just China, but Europe, which I argue is a Chinese surrogate economy play as well.  The German Dax index?  New 52 week high as well as new ATH. Up 13%+ YTD. The French CAC index, almost at a 52-week high, but up 12% YTD.  It’s lagging in some other European indexes due to its large weighting of LVMH in it.  Investors, when the dollar peaks, international stocks streak.

A couple more final bullish stats.  Investor sentiment has recently plunged in the last 4 weeks on the back of the continued shotgun policies coming out of DC that, while I agree with many of them, are rapidly slowing growth and consumer sentiment on the economy and stocks. According to AAII, US Investor sentiment, Bearish is at 47 %, compared to 43% last week and 22.5% last year. This is 50% higher than the long-term average of 31%. Here’s the overlay chart from All-Star Charts:

Finally, an often talked, at least talked about by bearish traders when they think the market is going to “crash or go down big, is the MOVE index.  We’ve discussed these one many times the last 2 years.  It’s bond volatility.  It’s like the Vix of the Treasury bond market.  Why does bond volatility matter?  Largely because bonds, and more specifically Treasury bonds make up the largest collateral pool markets in the world and Treasuries are supposed to be the safest collateral in the world.  US Government IOUS.  When bond volatility is high or rising, hedge funds have to deleverage and have to sell. Whether they want to or not.  When bond volatility is declining, or low, hedge funds can leverage up their investments.  They can take more risk.  They can buy more of what they like.    Here’s a chart of the MOVE index.  Investors it is going down not up, like many on TV discuss.

This is bullish for equities already and should it break below 80 later in the year, expect stocks to start to march higher consistently then eventually parabolically

As we previously mentioned, soft landings in the economy do NOT guarantee no volatility. This time around, the Trump administration seem to be going for the early, “shock and awe”, which financial markets do NOT relish.  However, behind the scenes, believe it or not, bond volatility is declining.  That’s just data.

Finally, investors, while seasonally, February does tend to be a lower return, higher volatility month for stocks, particularly the first year of a Presidential term and maybe the tariff actions and DOGE firings are this year’s excuse. I don’t know.  Here’s the historic data on monthly seasonality from Suttmeier’s data group at BAC securities.

As you can see, while February has historically been down the first year of a Presidential term, that down has historically been the best buying opportunity until late summer and 2- proceeded 5-6 straight months of positive returns in stocks.  Historic data of course there are no guarantees, but since our team coined the term the old normal back in late 2022, yes, the stock markets have performed in quite normal ways versus historical economic cycles we are mirroring.  Soft landings, however rare they are. For now, it’s been a bull market, we are in a bull market and however choppy things appear on your TV screens, we advise to continue to run with the bulls, and that’s bad news for the bears.

Investors know that regardless of the path for the economy and financial markets in the next few months, the investment team at OHFG will be here manning the ship and adjusting our models and long/short hedge equity fund where we can. We expect 2025 to be a very active year for active stock management.

Until next week, have a blessed weekend.

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