A quick note as the first half of 2023 draws to a close, shocking the locals with its intensity. Why? Because almost nobody saw this rally coming.1
As of this moment, the indices stand appreciably higher than where they were on January 1, 2023: The NASDAQ 100 is up >38%, the S&P 500 is up ~15.5%, and the Russell 2000 small cap index is up almost 7%. These numbers would make for a respectable year much less half that time.
Consider these gains in light of yesterday’s discussion about belief systems and thought processes, Only this time, instead of referring to anti-vaxxers and insurrectionists, think about all you heard from the fund managers, economists, strategists, and assorted pundits who freely opined on where this market was going to go in 2023.
Why were they so sure they knew what was going to happen? What were their sources? Their process? Did they consider the possibility that they might be wrong?
More importantly, were you relying on these people to inform your investment views? With their recent track record fresh in your mind, will you still rely on them in the future?
Having missed the huge rally, this same group of folk is now busy running around with their hair on fire, yelling about how unsustainable this move is — they seem to feel that stocks are too pricey, although one must wonder if they would feel the same way if they were participating in the rally, rather than shouting at it from the sidelines.
Perhaps for a little context, we might consider these indices in a broader time frame than YTD: For example, looking back 2 years shows us that most of these 2023 year-to-date gains are simply a recovery of the 2022 drop, as rates rose and fears of a profit collapse unfolded.
As the 2-year chart above shows, NASDAQ 100 is up >4%, the S&P 500 is up ~3.4%, and the Russell 2000 is off 18%; these are hardly reasons to celebrate. And yet, that is exactly what the past 2 years in the U.S. equity markets have gotten you.
A rally off the lows looks very different in the context of recovery of a drawdown.
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Enjoy the holiday weekend, and stay safe out there…
Previously:
What Do You Believe? Why? (June 29, 2023)
Groping for a Bottom (October 14, 2022)
Nobody Knows Nuthin’ (May 5, 2016)
Too Many Bears (May 3, 2022)
Capitulation Playbook (May 19, 2022)
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1. Several technicians have been pounding the table since the June and October lows, including Ed Yardeni, Ralph Acampora, and J.C Parets.
