Is the bull market, which started after the lows of early 2009, coming to an end? Let’s have a look at some data, as well as the arguments pro and con, to see if we can find any insight. In particular, I want to look at the latest economic, corporate and market issues to see what we might learn.
First, the U.S. economy. As we have observed, it has been a long slog out of the depths of the financial crisis. Gross domestic product growth has never really taken off; wage growth is weak; and retail sales, except where cheap credit flows freely, have disappointed. Many people have little or negative equity in their homes. I have explained — or if you prefer, rationalized — that this is typical of other post-credit-crisis recoveries.
The primary upside to the U.S. economy has been job creation, housing and demand for capital.
Start with the recovery in the labor market. Unemployment now is 5.3 percent, almost half of what it was in the aftermath of the crisis; 11 million jobs have been created since the Great Recession ended. Job openings continue to increase, and there are signs that wages may finally begin to move higher. This is significantly better than it has been at any time since 2007.
Second, housing has improved. It is still below where it should be under normal circumstances, but as we have noted, these are not normal circumstances. Aided by low inventory (courtesy of the aforementioned equity issues) and cheap mortgage rates (courtesy of the Federal Reserve), prices are rebounding. We are also seeing building permits rise, and bidding wars for both buyers and renters are not uncommon. In select coastal and urban areas, there are definite supply shortages. Despite this lumpy and unevenly distributed improvement, the housing recovery is occurring.
Last, and perhaps most meaningful . . .
Continues here: Is the Bull Market Over?
Statistically speaking, yes, the bull had ended, or more accurately, the relative period of order that defined the bull market general upward trend which began on 4 August 2011 has ended.
1.GDP is useless. I don’t buy the government’s “model” on it. They try to base GDP on investment, but clearly this is a consumption economy. I even mentioned this 10 years ago when the same whining was going on. It doesn’t jibe with payroll growth or the large decline in the U-6 over the last 2 years.
2.Housing has accelerated. It won’t stop to it catches up to demand. Your basis on that is incorrect.
3.Most of the “global slowdown” China trade war stuff is pure garbage.
4.The Fed should do their .25 raise in September and smirk. Maybe the brain dead will listen.
5.The market is bored and short sellers are out of control
6.The squeeze is where you make the money.
1. GDP includes investment and consumption (GDP = C + I + G + X – I). Investment has been low in part because companies have been borrowing money to buy back stock at very pricey valuations. The money spent on buybacks has exceeded capital expenditures for some time now.
2. How will increasing interest rates, should they come to pass, impact housing? Rental housing is doing best because many people can’t afford to buy.
3. How is it garbage? The massive plunge in commodities certainly suggests otherwise.
4. I continue to doubt they’ll raise rates. If anything, I expect rumours of QE4 by the end of the year.
5. Short sellers are out of control? The first time we’ve had a correction in 4 years and the short sellers are out of control? Could it not be that stocks are just very expensive by every traditional measure (q ratio, CAPE, dividend yield, and on and on it goes).
6. If this episode is anything like similar episodes over the last 6 years or so, the correction will last a nanosecond and, having checked the correction box, “markets” will miraculously recover their losses in short order. Already we’re hearing traders and market pundits beg the Fed to do something, so sheltered have they become with the diagonal up Fed put. We’ll know the central banks have finally decided to let “markets” be actual markets that trade on their own if there is not yet another ridiculous, instantaneous V-shape recovery.
When consumption is rising as part of GDP, so is its components meaning. In otherward, you just proved my point. The government is in error. They are overweighting investment, which we aren’t doing and underweighting consumption, which we are doing. Your post is void and null.
The fed will raise rates. Your inventing weakness that does not exist.
Let me note, the same mistake was made in 2001-07 as well.
“The real reason to be worried right now isn’t that these scenarios* are guaranteed or even likely. It’s that 99% of the people managing America’s money, probably including yours, assume that they are completely impossible. And no, they aren’t. Have you factored that into your plans?” – Brett Arends
* The scenarios are bad bear markets with Dow at 5,000 to 12,000 at bottom
http://www.marketwatch.com/story/dow-5000-yes-it-could-happen-2015-08-21?page=2
oh come on. those possibilities are on everyone’s table as much as Dow 20000 in 2016. That whole article is pure lol.
Brett Arends needs a hit to stay in the majors. Will this be it?
The bull will die when the Federal Reserve decides to take it off life support and let it die and not one moment sooner.
Thanks for the forecast
Opinions and guesses based on “news” and especially recent data is irrelevant. If not, then we can simply use logic and predict the future as this article attempts to achieve. Otherwise simply follow price with a good trendfollowing system most all of which were short prior to this past week on the major indexes, and if not prior then definitely by early Thursday. Allow for the possibility that you have no clue where any market will go, how fast, when, and simply follow the trade, manage open risk (as a % of portfolio assets) to the trailing exit rule, and most of all be patient.
We do (or should) know one thing…there will be screaming pleas for the Fed to “do something” and they may well not only forget a rate hike but start QE4 at some point if the risk markets continue to fall in price. This point in time has the potential to be *the* decision point of this 1/2 of this century. When the Fed steps into the fray again (cancelling rate hike plans and planning QE4), most likely causing a huge short covering in declining risk markets, at the point — if after such the downtrend resumes in spite of the QE4whatever plan, the potential exists for a huge discontinuity moment where the masses realize the central bank is either (or both): (1) actually the cause of the current situation, or (2) incapable of propping up risk markets any longer and hence belief in the narrative of central bank omnipotence is lost. Being prepared for such a potential outcome (which will be completely opposite every status quo held belief of our time) is mandatory for any risk manager.
I have successfully used trend as part of a broader methodology for 2 decades now, and while you make a few good points, you have some junk mixed in there:
1. There is no evidence whatsoever that anyone (much less you) can do this with any degree of accuracy and consistency;
2. The article specifically does not try to make any predictions (you must not have read much beyond the headline)
I’m calling bullshit on thisl its classic after the fact nonsense. Markets within a few percent of their all time highs prior to the Thursday Friday drop don’t make trend followers short. At best, you would be neutral — or guessing.
I’ll give you a definite “Maybe” on that one
Thats the best thing you wrote!
The Bull may or may not be dead – but the smell stays with us forever because BS is immortal.
Well, I guess it all depends on how you define a trend? If you don’t understand how a relatively simple trendfollowing system was triggered into short positions in the past two weeks, you sincerely haven’t studied and traded for very long with a properly designed system perhaps. I’ve run a relatively simple long term trendfollowing system across 22 futures markets since August 1995 and simply taken its signals. It averages 39 market days for winning trades (some exceed 200 market days) and 15 market days for losing trades (some within a few days, but those are rare since the initial exit is 4ATR from the entry point).
Your most incorrect statement is that “markets within a few percent of all time highs don’t make trendfollowers short” is profoundly incorrect. Most trend systems (that are successful over large quantities of data and markets) function on one or a combination of two entry methods — absolute price breakouts or volatility breakouts — both of which happened before the large move on most of Thursday. If you have a trend system that didn’t get short by during Thursday’s move, it’s not likely a successful one.
Surprise! It looks like Ms. Yellen is willing to let the markets correct. Good for her. This will be healthy in the long term. So where do we find the pre-unwind bottom on the Dow? 14K? 13K?