No Bubble: New ATHs — Throttling it Back
Market Update: 2021-04-12: No bubble. The S&P 500 rose 2.7% last week to more new all-time highs (ATHs). Its year-to-date gain stands close to 10% on the back of easing U.S. virus restrictions and improved economic data. This is in sharp contrast versus the draconian — and wrong — Q4 2020 predictions of a double-dip recession in Q1 2021. The Q1 earnings season kicks off on Wednesday with several large U.S. banks reporting. The 10-year Treasury bond is steady after rallying last week and then dropping 6 bps to 1.66% amid concerns about rising global Covid virus caseloads.
No Bubble in Stock Market
Much to the dismay of many legendary billionaire hedge fund managers, global macroeconomists and CNBC doomsayers, there is no bubble in the stock market, in our view. While we are throttling back our enthusiasm for the overall “buy everything” calls as we continue to expect a moderate late-Q2 pullback, we continue to see 2021 playing far more bullishly than most others — and the odds remain firmly bullish. The breadth of the S&P 500 is as good as the first half of 2013, post President Obama reelection round two (see chart). No bubble here, either. Do not fear this for H2 of 2021.
Historical Performance of the No Bubble Market
In the 10 years where the S&P 500 was up 5% or more in the first 100 days, it averaged a gain of 9.5% for the rest of the year. All years were positive except 2011 when it was down 5.3%. This return is more than twice the S&P 500’s average rest of year return of 4.5% in all other years since 1988. In both the U.S. and the rest of the world, when a year starts off positively, then it is also more likely to finish positively. Harken back to both 2013 and 2017, both first-year Presidential terms.
No Bubble Market Performed Well
During both 15-month periods, the S&P 500 returned almost exactly 38% from election days 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 — today, this moving average sits around 3905 and, by June, should mathematically be between 3925 and 3950.
Federal Reserve Looks Ahead
Last night, Federal Reserve Chairman Jerome Powell was interviewed on “60 Minutes.” He sounded positive on the economy, but he remains cautious stepping on the brakes until the economic recovery and jobs market has progressed further. He noted that the Fed can afford to wait until inflation increases above the 2% target rate for some time before raising short term interest rates — forces such as globalization are pushing back on price pressures.
Resources
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Interesting Reading:
Markets: Cumulative Total Returns, Week Ending 4/12/2021
Resources
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