From Panic to Peak: Why Markets May Hit New Highs This Summer
Last was a short video. Its title, V-bottoms in stocks, no one gets in. We had discussed for weeks in our videos, looking back April 7th “was what our team though was “The Low” for the overall S&P500 index and USA stocks much to thea dismay of those calling for crashes, retests of the lows, trading ranges lower, or worse yet those blown out on margin at the lows, or investors who panicked and went very rare to cash late in the move down.
In our prior four videos, we discussed that ex a few periods like the GFC in 2007-08 and the popping of the speculative Dot.com bubble frenzy in 2000-01, history had said enough damage had been done and many hedge funds got zero out on the lows and many retail investors have been buying the correction.
The Zweig Breadth thrust on April 24th, created the first big technical indicator we needed to be much more confident for our prior call for a bullish move higher. And the tariff “deal with China 3 weeks later over the weekend created the reason most needed to finally cover shorts or desperately try to get back in the markets gapping over the 200-day MVA like it was nothing. Here’s another interesting breadth thrust indicator that was recently triggered that I’ve never heard of before but looks like interesting data. It’s based on the % of stocks hitting new 20 day highs.
I believe the DeGraaf, is the Jeff DeGraaf from RenMac who appears on CNBC pretty often.
When you combine the 2 breadth indicators, they have only hit together within 1 month 8 times in history. Here’s the results from the 7 prior periods whose outcomes we know.
A +16% gain would be S&P500 over 6800 by XMASish and a +26% gain would be an S&P500 over 7400 out a year.
History was already on the side of the bulls, saying calls for a retest of the sub 500 lows would be wrong. Investors, like it or not, this is what goldilocks for stocks look like in the bond market. Rising real growth and stable to falling inflation breakeven interest rates. No not the surveys or Fed speeches.The components inside the Treasury market were saying, its better to buy growth stocks,than hiding in “boring, stable names”. And boom, a news story hits that corraborates what the real time market has been saying if you were watching closely.
Of course, last Friday post close, with the S&P 500 futures nearing 6000, post May option expiration, a news story hit the tape that has long time bears and doomers circling like sharks again. That story, that the rating Agency Moody’s downgraded the US debt from AAA. Their move dropped the country to Aa1 from Aaa. The company, of course was already years behind its rivals who did this years ago, blamed successive presidents and congressional lawmakers for a ballooning budget deficit it said showed little sign of narrowing.
Adam Khoo, of Piranha Profits, gave a us a quick data recap of the prior 2 debt downgrades in 2011 by S&P and in 2023 by Fitch. Back on Aug 5, 2011, after S&P downgraded US debt, the S&P 500 ($SPX) dropped -10.4% in 41 trading days.
Of course, 12 months later, $SPX was up +36%. Then 12 years later on Aug 1 2023, Fitch downgraded US debt, the S&P 500 ($SPX) dropped -10.3% in 58 trading days. OF course, 2 months later, $SPX was up +37%.
If the markets behaved in a repeat fashion, that has the S&P500 dropping to about 5360-5400 and then rallying to over 7200 in 2026. Investors, I do not expect the S&P500 to fall back anywhere near -10% on this news story. Why? Both prior downgrades took place during the summer in August, which is a historically weak and illiquid seasonal time for stocks.
Right now, the markets have V=bottomed to start the 2nd quarter, and the data says most big investors were not ready for this rapid rebound and are already lagging their benchmarks by a big margin for the 2nd quarter and YTD. I mean how many TV personalities did you hear calling for a V-bottom back in the first few weeks in April? Hedge fund billionaires. Nope, I only heard, retest of lows coming or lower lows coming or we are overvalued. For 4 straight weeks. Most sell side Strategists? No, they were all cutting targets for the first 800 points of the rally.
I titled my prior video, V-bottoms, no one gets in, because historically speaking, if you didn’t buy the first 10 days after The Low on April 7/8th you missed your best chance during the selloff.
Off the early April lows, the market has behaved almost exactly as it has the last 15 years during event induced selloffs that reached bear market levels without the likely hood of an earnings or economic recession like we got in 2022. What’s that? We spent EXACTLY 2 months to the day, breaking the 200-day MVA and then regaining it. Count the days. Then go back to our previous comparison in late 1998 with the LTCM October 1998 blowup event and count the days? 2 months to the day. Yes, now that we extended above 5900 in cash S&P500, it would be normal to digest these gains this week and next and pull back in a minor way. However, I would not expect large % declines, hoping to buy lower in the 2q. Historically, these rapid V-bottom moves lead to frustratingly bullish, lurch and grinds higher for about 3 months before the market finally sees significant sellers emerge. What would that look like based on prior cycles? Cash S&P500 above 6000 somewhere in early June, above 6100 around July 3-8th holiday, and a summer top at or near a new ATH of about 6200 in early August, followed by a summer selloff into 3q EPS.
Investors you most likely won’t see those low levels of April again for quite some time if at all this year. Many institutions got too bearish near the early April lows and “de-risked” and are already way behind the performance curve in the 2nd quarter. Does that mean you shouldn’t add to stocks? No, rarely can you pick the absolute level in both price and time, particularly in growth stocks. If you are interested growth stock in vesting with a twist, you might want to look into our new hedged equity strategy. Our team has put twist ona growth stock portfolio that we think will interest many investors. You can check out our Long/Short hedge equity fund OHFGX by clicking on the link below or go visit Morningstar’s website for up to the day performance on the fund.
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, hedged equity fund where we can.
Until next week, have a blessed weekend and know that the OHFG team is doing what we can to plan for you and your family’s future regardless of what stage you are at in your career or retirement.
Do you need a retirement plan that goes beyond allocating funds to truly fit your needs? We can help you create a retirement life plan customized for your retirement vision and legacy. Call us at 877-896-0040 or fill out this form for a free consultation: https://click2retire.com/Connect
Chris Perras
CFA®, CLU®, ChFC®
Chief Investment Officer, Financial Advisor
Chris is a seasoned investment professional with over 25 years of experience working with some of the most successful money management firms in the world. Chris has made it a point in his career to adapt as the market landscape changes, seeking to utilize the appropriate investment strategy for a given market environment. His transition from managing billions of dollars at the institutional level to helping individuals and families retire is guided by a desire to see first-hand the impact he is making in the lives of clients at Oak Harvest.
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