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Where's The Evidence The Bear Ever Left?

CAMS Weekly View from the Corner - Week ending 10/27/23


October 30, 2023


In recent days we have seen snippets from X individuals/entities offering the bear market in stocks may be returning. Our kneejerk thought offered where was the evidence the bear market ever left?


To be certain we have been fully aware of the stock market’s behavior here in 2023 – implying a positive tone.


Frankly, therein underlines the problem – we have been fully aware of the stock market’s behavior this year as in the entire stock market not just a few handfuls of companies that have made the stock market appear it was notably improving.


To be accurate to the storyline there were times in 2023 when the stock market as a whole began to offer something positive was trying to unfold but that developing broad market positive behavior would evaporate nearly as fast as it began.


Along the path we heard the calls (if not screams) “A new bull market has begun!!!” with little substance shared behind the calls other than what sounded like a lot of hope and narrative.


The stock market itself was offering little that a true (real) new bull market had begun. In fact, as months unfolded it was offering continued evidence via its own broad based behavior that the bear market was intact. Hold the thought.


Basic Ingredient of a New Bull Market


If we erase all the noise and reduce everything down to the most basic ingredient of a bull market we walk away with one word – trend.


Simply put, if there is not a trend how can we have a new bull market? Continuing with extreme simplicity; if market prices are not able to achieve a series of higher highs, i.e. an uptrend, then we cannot point to a trend and hence no bull market.


Anything beyond this most basic ingredient falls under an umbrella of forward analysis, subjective opinion, historical reference points extrapolated out to the future, etcetera – the list is long. Importantly, said list is important and can be quite useful but without the aforementioned basic ingredient there is no bull market.


Let the Market Talk


With the most basic ingredient laid out we will let the market itself tell her story.

Above is the well recognized S&P 500 price index. This chart dates back several years and is a weekly chart which we use to take out the noise of daily trading.


Our thin black arrow line highlights the downtrend that began at the beginning of 2022. Our thick red horizontal line denotes the high point in price and is drawn out across time acting as the barrier that needs to be solidly exceeded before we can point to a new trend, i.e. a new bull market.


Again reduced to simplicity an uptrend (bull market) is a series of higher highs. Per our red line, to date, we have not been able to touch let alone exceed the prior high. Hence, no trend, hence no new fresh bull market. Lots of narrative of such with no evidence the bear market has left us.


Importantly, we could fill this edition with endless charts reflecting the experience as depicted above which underlines the consistent messaging from the broad stock market itself. Rather than being redundant we move onto the market itself strangely offering curious evidence along 2023 that in fact we have remained in a bear market.

The above chart depicts the Russell 2000 Small Cap Index which focuses on small size companies within the stock market. Like our first chart this is a weekly chart dating back several years.


Our red horizontal line denotes the previous high point which took place in latter 2021. Unlike the S&P 500 and other headline type indices this small company index has been stuck in the mud so-to-speak all through 2023 and has been unable to even an attempt at the previous high mark.


Our blue horizontal lines denote price action for 2023 and highlight how these companies have been unable to offer any upside reprieve from the bear market that began to start year 2022.


In addition, note current day how the price line has fallen down through the lower blue line which is known as a downside range break in chart analysis which emphasizes further how poorly price behavior has been and continues to be for this important area of the stock market.


Small companies typically lead the charge of new bull markets and if not leading certainly participate in a big way. They certainly are not leading and when they have tried to merely participate they quickly failed. Current day in 2023 they are solidly negative in their price performance for the year.


Direct Beneficiaries Should Certainly Outperform


Wall Street Asset Manager’s, Mutual Fund companies and Broker/Dealers are all direct beneficiaries of bull markets as the size of their assets under management increase providing notable increases in revenues and profits. Collective market participants bid these companies higher in particular when coming out of down markets (bear) as they anticipate a revenue and profit windfall.


Interestingly, here in 2023 these companies have been ignored by said collective participants.

The above chart represents the Dow Jones U.S. Asset Manager Index. The above matches our two previous charts in that it also is a weekly chart dating back several years.


Our red horizontal line denotes the previous high mark which dates back to begin year 2022. Our blue circle encompasses price behavior thus far in 2023 for this index. In this case, reflecting how poorly these are behaving price wise, our blue arrow identifies prices have had difficulty staying above their price high of 2018!


If the new bull market mantra was accurate throughout this year it would be the first bull market known whereby direct beneficiaries of such an environment were completely forgotten by collective market participants.


The truth is, per the market evidence, collective market participants did not agree with the new bull market narrative which is reflected in how they have traded small company stocks and Asset Manager’s as well as a wealth of other areas of the stock market itself.

The bottom line is we remain in the bear market that began at the outset of 2022 until proven otherwise by the market itself.


The question is will we move back to previous 2022 low points for you-name-it stock index and if we do will they find a way to move lower from there? These are unanswerable at this time but what is provable is 2023 has not been the beginning of a fresh new bull market.


That is very important market based information to be aware of as we continue to operate within this challenging market environment.


I wish you well…


Ken Reinhart


Director, Market Research & Portfolio Analysis

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