A week or two ago, a reader over on www.seekingalpha.com asked me what would turn me bearish or more negative on the markets, (and this was after this blog updated forward earnings estimates and noted in an article that SP 500 earnings been revised higher for the four weeks in a row). It’s a legitimate question, but then the reader attached some analysis from the Hussman Funds, it kind of ruined the whole ambience of what I was hoping would be a reasoned and legitimate debate and discussion.
The thing is the short-sellers never really quit with the negative perspectives and the constant cacophony of “disaster is just around the corner”.
I listened to the interviews and read this crowd’s missives constantly in the late 1990’s, but the SP 500 and the Nasdaq kept going, and going, (and going). The “annual” return for the SP 500 from 1995 to 1999 was 28% a year. The Nasdaq Comp increased 100% from mid-October ’99 to March, 2000.
The 2008 Crisis had it’s share of prognosticators as well: Michael Burry, John Paulson, Jeremy Grantham, all were right on the worries from both residential mortgages, and the leverage in the financial system, and all were wrong starting in 2009. (Doug Kass who I read daily over on Jim Cramer’s TheStreet (used to be known as TheStreet.com) actually was one of the few short-sellers who was right on 2008 and then covered in March, 2009, after he talked about March 9th, 2009 being a generational low. It was a good call and he seemed to be the only prominent short that made that call.)
Anyway, the point of this whole blog post is that at the top of this page, shows the major indices as well as individual stocks and their distance below their all-time-highs. Personally, with the Fed cutting rates, and SP 500 earnings looking reasonable, and the US consumer in much better shape than coming into 2008, (or even Covid for that matter), “average” market corrections is all I’m looking for.
All the tech names like Microsoft, Nvidia, GOOGL, Meta, hit their all-time-highs in June and July ’24, and haven’t revisited since. Berkshire Hathaway Class B made a new all-time-high recently and has backed away as has Eli Lilly (LLY).
Again the point of this is that I’m watching the Russell 2000 (IWM), which hasn’t made a new all-time-high since late 2021, even though the equal-weight SP 500 (RSP) and the SPDR Mid-Cap (MDY) have quietly made new all-time-highs recently. A bigger move higher in the “also-ran” indices and a bigger move lower in the SP 500 and the Nasdaq Comp, will ratchet up the anxiety level.
The peak in March, 2000, for the SP 500 wasn’t surpassed until early May, 2013. I just don’t think that the mega-cap 10 or the SP 500 and the Nasdaq are going to see all that great of a flush or correction, particularly since 2022 saw significant drawdowns for the SP 500 (peak drawdown I thought was 24%in 2022) and the Nasdaq Composite dropped 30%, which isn’t too long ago.
Summary / conclusion: The table at the top of the blog shows the major indices and their respective stocks and their drawdowns since all-time-highs, as we enter the worst 10-day period for stock returns each year. The last two weeks of September – historically – are brutal, in terms of stock market returns.
Note the proximity of the SP 500 to it’s all-time-high, which isn’t much at all as the big Nasdaq names lag to a greater degree. (That worries me a little.) A breakdown in the semiconductors which has been the leadership group within technology, would be a bigger worry. Clients are long the SMH.
50% corrections for the SP 500 are very rare: there was only 1 between 1945 and 1999, and that was 1973 – 1974, and the almost Constitutional Crisis that was Watergate, and Vietnam, and the creation of OPEC and the Arab oil embargo, then the US investor saw two (!) 50% bear markets for the SP 500 between 2000 and 2009.
None of this is advice or a recommendation, but only an opinion. Past performance is no guarantee of future results. Investing can and does involve the loss of principal, even for short periods of time. Readers should gauge their own comfort with portfolio volatility and adjust accordingly.
Thanks for reading.