Stocks Rebound: Have We Seen the Market Bottom?

This is going to be a short video as hopefully we are ending a relatively uneventful and lower volatility week.  When I wrote this script, the market had rallied back in a rare 9 straight day rally. April proved to be one of those months that short term traders probably love and long-term investors watching their portfolios too often hate.  So far, early April stock showers have brought May flowers.

The SP500 ended the month of April down a very modest -.75% while the Tech heavy NASDAQ ended the month up +.85%. Of course, this doesn’t tell the whole story of April as intra month, the SP500 fell – 14.5% from its peak to its intraday low on April 7^th and the NASDAQ fell, also fell -14.55%%. Since happier days at the end of February, the S&P500 fell – 18.8% from Feb 28^th into the April 7^th low and the Nasdaq fell a astounding -21.55% over the same time period. As of this writing the S&P500 and the NASDAQ are both about -4.6% lower over those 2 months.

Right now it looks as if, April 7^th “was “The Low” for the overall S&P500 index and USA stocks.  Ex a few periods like the GFC in 2007-08 and the popping of the speculative Dot.com bubble frenzy in 2000-01, which did proceed longer and deep recessions, history says enough damage had been done and many hedge funds got zero out on the lows and many retail investors have been buying the correction.  Just to let one know,in my book,  -20% in the market is not a “DIP”, in anyone’s book unless you are a online financial media poster not trading the markets or investing.  Here’s a chart of the SP500 since the end of the GFC in 2009 with and approximate channel drawn.

Next is the 2 year chart of the S&P 500 with the recent 3 months highlighted, including what looks like the recent “v-bottom”, followed by the Zeigh Breadth thrust confirmed on April 24^th, leaving what many chartists call a bullish “Island Reversal” pattern.

As of this writing, the S&P 500 is nearing its 200 day MVA from underneath. Many bearish leaning analysts will deem this as resistance and doomers will likely call for a rollover.  The same strategists who called for a retest of the April 7^th lows, at least 500 S&P 500 points or 10% lower, will likely have grown louder this week.  Regardless of this wrong-footed call.

Historically, we are entering a prolonged recessionary period, the data would say these calls for a retest will be wrong.  We’ve given you the data on Zweig Breadth thrusts, investors sentiment data, and vix spikes and retracements in the last 2 weeks. If you missed those here are the links to those prior Youtube videos:

1. https://youtu.be/aXBzg4wLNbg
2. https://youtu.be/q4CnZja8qTw

Given that the Fed met a few days ago, investors will probably be inundated with short term market calls based on Fed inaction. We are likely to hear calls from doomers about higher interest rates, or higher inflation, and “stagflationary” bear markets. I’m hear to say, that in my opinion as well as the real time market data, these calls are likely way off base.

Everyone following Oak Harvest the last 7 years knows, I am not a big fan of following government data as its always revised. Thereby lacking accuracy and reported with false precision. However, we do follow trends in the data sets, hence us warning throughout 2h2024 that the jobs and economic data was being overstated as too strong into the election.

Now, investors the economy is NOT as weak as doomers as implying. While the job market is colling jobs are still groing with April numbers stronger than expected. Despite worries over the impact of President Donald Trump’s trade policy, Nonfarm payrolls increased 177,000, slightly below the downwardly revised 185,000 in March but above the Dow Jones estimate for 133,000.  Of course all the previous numbers were revised lower, just as had been done during Bidens presidential term,. Here’s a link the breakdown on ZeroHedge, who has been doing the data analysis better than anyone we know for the last 3 years. https://www.zerohedge.com/markets/april-jobs-unexpectedly-jump-177000-higher-all-estimates

So, it looks like both administrations like to overstate the strength in jobs to make their cases for their policy decisions.

The better news for financial markets, not workers, in the jobs data was that wage growth, or more precisely a slowing in it.   Hourly earnings rose +0.2% in April, below the 0.3% estimate and down from last month. On an annual basis, wage growth decelerated to +3.8%, the same as March, and below the 3.9% estimates last month. In addition, workers got fewer hours last month as the average workweek was unchanged in April. In manufacturing, the average workweek dropped by 0.2 hour to 40.0 hours, and overtime was unchanged at 2.9 hours. In April, the number of full-time workers rose by +305K, while part-time workers increased by 56K, a long-awaited return to where full-time labor leads.

One can rationalize why markets have V-bottomed since early April on walking back of tariff extremism, better jobs, and wage inflation data, but viewers who know me know I like real time market data.  Here’s that data about what the bond market is saying behind the scenes.

In early April, real growth expectations for the US economy, which peaked in July 2024 on the Biden sugar high spending, were heading lower into the election, then literally fell off a cliff starting Jan 1 as the Trump administration starting highlighting trade and tariffs over virtually every pro-growth policy, V- bottomed and have been heading higher all of April.   Here’s the 2 year, real time real yield of 2 year Treasuries. Pick your maturity, the charts and trends look similar.

Here’s the 2 year inflation Breakeven chart over the same time period. Rising inflation expectations all of 2025, until? Yes, a peak in early April and now? Heading lower not higher.

Innvestors, like it or not, this is what goldilocks for stocks look slike in the bond market.  Maybe with less volailty, but the components inside the Treasury market are saying, its better to buy growth stocks, stothan hiding in “boring, stable names”.

Finally I’ll leave you with an update on how the charts look vs a simialr peroid that was mid Dot/com not peak Dot.com.  I feel compelled to keep showing this particualry after Charles and I listened to dozens of technology confernce calls the last 2 weeks that were positive of the coniued AI buildout growth for the next 12-18 months.

Remember, the late 3qrter 1998 LTCM hedge fund blowup period, which was mid Dot.com buildout that we’ve previously referenced when the S&P 500 dropped over -21%, tech tanked, semiconductors dropped, the dollar fell -10% was also one of these “death cross” periods.  No, it’s not exactly the same but back then the S&P 500 did go on to make substantial ATHs over the next 12 t0 18 months.

I know you’re saying to yourself it’s different this time.  Maybe it is. But so far, it looks and feels a lot like it did back then.  The SP500 dropped about -22.4% peak to trough in about 2 months back then into peak global uncertainty and hedge fund blow up and forced liquidation.  The S&P 500 recently fell almost exactly the same % peak to trough, using intraday highs and lows.Here’s the overlays of the SP500, NASADQA Comp, and the very cyclical SOX/Semiconductor index back then and now.  It will be fun to see how this plays out the next 9-15 months.

As much as we heard that the Fed is on hold and heard the President berating the Fed Chairmen to cut rates, the Fed is on a rate cutting cycle. They are currently paused and not cutting like most of the rest of the world. I don’t know what was in Powell’s speech as I wrote this 4 days before, but I imagine he mentioned real time inflation breaks evens flat to dropping, a slowing but stable job market, and hinted at rate cuts coming later in the year.

Investors have rarely been this fearful and sentiment this negative, and historically when it’s been at these levels, you’ve been better off buying and walking away for 12-18 months than selling.  Per Lance Roberts at RIA here in Houston, net bullish AAII sentiment, as low as? Covid market lows, 2022 Fed Taper tantrum lows, and yes near GFC 1q2009 lows.  Looking back would you have been better off buying or selling with perfect hindsight?

Investors, I don’t know nor does anyone.  I do know that historically, If we are not entering a recession, which I don’t think we are even though many doomers have been calling for one for 4 years, then those early April lows are the Lows, and the number one should trade against.  That one should be buying and adding to stocks on any stall or pullback.

Remember that Stock prices don’t wait for the all clear and good news. Price bottoms almost 9 months before earnings do in bull markets. As long-term investors like to remind newbies, the market doesn’t usually wait for you to be emotionless and clear in thinking.  Stocks anticipate turns. The market doesn’t wait.

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.

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