Pumping the Brakes on the ‘Bull Market’

by Jordan Chussler
By Jordan Chussler

One month ago, analysts and the financial media were shouting from every rooftop in Lower Manhattan about the newly emerging bull market.

There was no shortage of headlines and tidbits hailing the market’s turnaround and instructing investors not to miss the train as tech and AI-leveraged stocks pushed the indices higher:

  • On June 8, the Wall Street Journal unequivocally declared the “S&P 500 Starts a New Bull Market as Big Tech Lifts Stocks.”
  • On June 12, Seeking Alpha, with unsurprising overconfidence, stated, “Sentiment Speaks: A New Bull Market Has Begun.”
  • And on June 14, Mad Money’s Jim Cramer said live on CNBC that “We are definitely in a bull market.”

If there’s ever a trustworthy voice in financial media, it’s Cramer. His track record is impeccable, isn’t it?  

Declaring a new bull market was preemptive and careless, especially considering the Federal Reserve’s ongoing plan to continue rate hikes until inflation subsides to its goal of 2%.

That realization caused the markets to sell off again this week, with the major indices all in negative territory over the past five days, with small-caps, as measured by the Russel 2000, leading the way downward with a -3.44% loss at the time of writing. 

It’s a cautionary tale I wrote about in late June, when a broad pullback followed the new bull market declaration. And it’s something I discussed two months ago on May 6, when I argued that even if the Fed stops raising rates, numerous other headwinds remain.

This week’s S&P 500 sell-off was just the most recent in a series this year, with each instance putting the bull market assertion on trial: 

  • From its then-year-to-date high on Feb. 2 to March 1, the index shed 5.65%.
  • After bouncing from that low, it sold off again from March 6 to March 13, losing another 4.76%.
  • After mustering just a 1% gain in April, the index dropped another 2.56% the first week of May.
  • And from June 15 to June 26, it added losses of 2.19%. 

Are sell-offs and pullbacks to be expected after strong runs? Yes. But are these recurring sell-offs instilling confidence in most investors? You would hope not. 

But alas, common knowledge is uncommon. This week marks the fourth in a row that’s seen the AAII Investor Sentiment Survey report over 41.9% bullishness:

Click here to see full-sized image.

 

My takeaway from that survey: Sentiment is about as practical a gauge of reality as Punxsutawney Phil. If emotions dictated actuality, Jets fans wouldn’t still be waiting for their first Super Bowl win since 1969.

So while the S&P remains precariously above its 200-day moving average — the generally accepted marker for bull and bear markets — it once again finds itself range-bound and above or near “overbought” territory (as measured by the Relative Strength Index) since June 9.

And with the Fed potentially planning another rate hike after its next FOMC meeting from July 25–26, proceeding with caution and safety-rated investments, as our team of editors and analysts has said time and time again, is your best path forward.

Because if this is a new bull market, it’s still a calf being weaned by its mother, and it could buck its riders at a moment’s notice.

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Until next time,

Jordan Chussler
Managing Editor
Weiss Ratings Daily

About the Managing Editor

Jordan Chussler is the Managing Editor for a team of research analysts and senior editors. He oversees the development and production of trading and investment products and services reporting on traditional equities, including stocks, ETFs, income vehicles, options and private equity. He is a 15-year veteran of the digital publishing industry and also serves as a contributing writer for Weiss Ratings Daily.

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