top of page
  • Writer's picturecornerstoneams

The Stock Market Questions its Bull Market

CAMS Weekly View from the Corner - Week ending 6/14/24

June 17, 2024

In the previous year-plus we have internally questioned this overall stock market landscape and whether it is truly a bull market.  As the previous several months have unfolded we have noted how our questioning of this market has picked up in consistency. 


This is not because we have an opinion of such but rather because of what the stock market itself is doing, and not doing in its overall behavior.   


If this is truly a solid new bull market why then have collective market participants been disinterested in bidding up, on a trend basis, large swaths of the market landscape that traditionally are solid participants in sound bull markets?


Fresh new bull markets are always powerful upward trending beasts where they leave no question that one has begun and is actually on-trend. 


While there are always various companies leading the charge in a new bull market the broad stock market landscape is always abundant in strong trending opportunities across the entire market landscape.  As a general description this has not been the case for this market landscape post-2022’s tremendous decline.


While we have been discussing this internally along the post-2022 path, a couple of months ago we opened this topic up within an edition.  Today we continue with monitoring this on-going collective market participant behavior.


A Revisit of Our Previous Observation


When we opened this topic back in the spring season we shared a chart that was startling when viewed through any amount of market history.  It is one of many market based relationship views that we monitor.   


What has taken place within the stock market landscape, as depicted from this market based relationship view is leaning into the surreal when realizing we are supposed to be in a rock solid true bull market current day.  This is not how solid bull markets act historically.

First a refresher on the above charts.  They are the same chart which we have placed together for visual emphasis. 


The first chart is the version we shared back in our spring season edition addressing this topic.  The second chart is updated to current day.  When viewing the two together the cliff-dive in our second chart (lower right) pops right off the page.


Importantly, when we published this in the spring season we were already flabbergasted at the displayed behavior.  Behavior since then has left us searching for descriptive words. 


What is this?


A market relationship chart depicts a relationship in trading of two different measures.  In one chart you get a visual of the trading relationship of the two in question.  Above is the equal weight S&P 500 index as compared to the weighted version of the S&P 500.  


When the line in the chart is rising this means the equal weight (broad market) is outperforming the weighted S&P 500.  Conversely, if the line is trending down the equal weight (broad market) is underperforming the weighted index.


For the equal weight version all 500 companies are weighted the same in the construction of the index and hence no one company has a greater or less than impact on the performance results of the index. 


The end result of this is it offers a good view of the actual performance of the broad stock market.


In the weighted version very large well recognized companies have larger weightings in the construction of the index which results in the returns of the weighted S&P 500 index being dominated by those companies.  As an FYI, the weighted S&P 500 is the version that is always referenced by media outlets.


History Offers


When we place the two S&P 500 versions together we get the aforementioned relationship chart. 


To reiterate, bull markets, historically speaking, are strong upward trending storylines across the whole of the stock market.  They do not limp along so-to-speak in the sense of being led higher by fewer and fewer stocks. 


The above relationship chart offers a quick one-stop view of the strength, or lack thereof, of the broad stock market.  As offered, when the line is trending down the equal weight index (broad stock market) is notably underperforming the weighted, narrower index.


To this point our above charts date back to the early 2000’s.  This denotes the time period coming out of the 2000-2002 down market (bear market) as our beginning point. 


Our red up arrows highlight how new bull market runs are strong with broad participation across the stock market landscape.  (Again, when the line is rising the equal weight (broad) S&P 500 version is outperforming the weighted version of the index.)


The charts reflect how strange this post-2022 bull market has been when viewed through some history. 


To this observation our black down arrow (far right) highlights how this relationship has been doing the exact opposite to what is historically customary in bull market launches.  


The updated behavior via our second chart offers what was already very strange has morphed into a tailspin.  This is offering that collective market participants are less and less interested in bidding up the broad stock market as compared to a narrow list of select names. 


More specifically, the divergence in performance between the equal weight and the weighted S&P 500 is getting astounding. 


Does this mean the stock market is looking at an imminent decline?  No.  Are conditions setting up such that the stock market could have a correction of note if not an actual trend downward?  Yes. 


Does this equate to certainty that we will see a notable decline even with conditions within the stock market setting up as they are?  No. 


Welcome to markets – they rarely offer absolute certainty on a forward view.  What they very often do is offer the focused observer/participant signs of caution, which if honored can keep capital out of harm’s way. 


Psychology Adjustment


Honoring cautionary signals usually boils down to a psychological adjustment.  When 100% invested, with the proverbial gas pedal to the floor, it takes an adjustment to mindset in order to honor caution signals. 


Many times, in particular in market participation, when there are built-in mental expectations of more positive returns to come the idea of letting off the gas a bit, regardless of caution signals, seems nearly unthinkable. 


For our part, in guiding assets under our management we are fully steeped in the recognition that we are managing risk assets when exposing capital to various markets.  It’s the risk part that offers said asset can actually go down in price.  Stocks are risk assets.  We consistently remind ourselves of this fact. 


With this we are heeding cautionary signals emanating from the stock market landscape as we traverse the various market landscapes.  The above relationship view is one signal that has been offering questionable stock market behavior that continues to decline at a rapid rate via our second chart above. 


There are other cautionary/concerning behaviors that we continue to monitor and will share as the summer unfolds.  Internally our overarching question has been and continues to be can these various issues get healthier in their trading behaviors and hence reduce the need for a cautionary mindset? 


Time will inform and we will share accordingly.

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

1 view0 comments


bottom of page