For the second time this year, interest rate fears and an extended market kicked off selling across the major market indexes. International stocks have been leading the way down for most of 2018. The bond markets have also not been acting as a safe haven. While bonds rallied some during the tail end of the stock market drop, they remain weak and negative for the year. From top to bottom the S&P 500 lost a little under 8% of its value before bouncing yesterday(Oct. 16, 2018). I don’t read this as an all-clear signal, but it was a necessary first step to arresting the decline. Once the immediate rebound is complete I expect that the market will probe lower again. The bottom line – I do not anticipate that this bull market is complete. For more detail on the state of the market you can read on, but this is the basic message I wanted to send. As always, we appreciate your calls and emails should you have further questions.
Back in February I wrote that the market was in the process of seeking a new sustainable path forward after having a blow-out rally to begin the year. I postulated that we would attempt to establish a less steep angle of advance going forward than we have experienced since November 2016. It appears to me that this process is complete. We have twice tested the upper boundary of this new angle and have been met with selling both times. The selloff we witnessed in March culminated with a test of the lower boundary and the selloff in October, which may not be done, is nearing that boundary again. My suspicion is the next time we leave the upper boundary it will likely be the final thrust of this bull market. Of course, that assertion is based on the facts we know today, and plenty of things can happen to extend the bull market for years to come. The reality is the average bull market from 1929 to present lasted roughly nine years. At 9.5 years old we are beyond the average length of bull markets. Eventually something will disrupt the status quo and we will enter a bear market. The last two years have been prolific enough that even a test of the main bull market trend line would be enough to qualify as a bear market given the main trend line is an additional 18%+ below the S&P 500’s current value. So while technically everything can be fine, we would find ourselves meeting the minimum definition of a bear market. For now, I want to stress that while I am aware of the downside risks I do not anticipate the bull market has concluded.
Click the link for a detailed view of what I am referencing: