Bull Market: New ATHs — Sell Tax Day?

Market Update, 2021-04-19. The bull market and the S&P 500 rose again last week to another new ATH. This was the fourth consecutive week of gains. This is the first such streak since last August (which did mark a short-term top in the markets for 2 months of up and down).

While the TV missive gave the reason as strong U.S. economic data, interest rates actually rallied strongly on the week and the S&P 500’s 1.4% gain was led by utilities and health care, while banks lagged. Those are NOT the strong economic data groups, but why let a good story get in the way of “breaking news” (sarcasm added). March economic numbers were strong across retail sales, industrial production and housing starts as Covid aid checks pyramided an already rebounding economy and bull market.

Bull Market, but Timing Still Important

Much to the dismay of many legendary billionaire hedge fund managers, global macroeconomists and CNBC doomsayers, the stock market is not in a bubble. And while we are still bullish on the year, we are throttling back on our aggressive buying as we continue to expect a moderate late-Q2 pullback. We also continue to see 2021 playing out far more bullishly than most others — and the odds remain firmly bullish. The breadth of the S&P 500 is as good as…? Answer: The first half of 2013, post President Obama reelection round two (see chart below). Do not fear this for the second half of 2021.

Expansion Q1 for the Bull Market

Global equity fund flows set a record high, with quarterly net inflows of over $300 billion in Q1 2021. Vaccination progress, fiscal stimulus and continued reopening of the economy buoyed investor optimism. We believe that we are in the first quarter of an expansion and the opportunity set for equities remains attractive amid a policy-fueled and vaccine-driven recovery.

When a year starts off positively, both in the U.S. and the rest of the world, it is more likely to finish strong as well. Harken back to both 2013 and 2017, both first year Presidential terms. During both 15-month periods, the S&P 500 returned almost exactly 38% from election days in 2012 and 2016 until the markets peaked 15 months later in Q1 of 2014 and 2018. During both the early summer of 2013 and 2017, the S&P 500 briefly retuned to its 50-day moving average — which now sits around 3905 and, by June, should mathematically be between 3925 and 3950.

Markets Outlook for Early Summer

“Sell in May and go away (!?!).” You will most likely soon be hearing this missive trumpeted across most TV financial channels. While it is a catchy phrase, it is historically inaccurate as a timing tool. Looking at historical data, this turn of phrase might more accurately be stated as “Sell Tax Day and go away” and, historically, miss next to nothing but a lot of frustrating ups and downs during the next two to three months heading into July 4 weekend.

Resources

Last Fridays Podcast: Looking Back, Looking Forward

Markets: Cumulative Total Returns, Week Ending 2021-04-19

Weekly Markets Update, Cumulative Total Returns, Week Ending 2021-04-19

bull market, broad strength

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