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“That wall has to come down. That’s what I’d like to say to them.” – Ronald Reagan
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Continuing the trend from last week and the last several months for that matter, equity futures are indicated higher this morning with the Nasdaq leading the way. The S&P 500’s bull market was confirmed last Thursday when it closed 20%+ from its October 12th low, but it will quickly face a big test this week with important inflation data and a Fed meeting culminating on Wednesday.
There hasn’t been a whole lot of economic data overnight in Asia or Europe, but Japan did report a larger-than-expected decline in PPI, and Machinery Tool Orders were down over 22% y/y in May after falling 14.4% in April. With data suggesting slower economic activity than expected, treasury yields are lower with the biggest moves at the short end of the curve, and crude oil is back under $70 per barrel to $68.43.
Barring an epic collapse in stock prices today, the S&P 500 will have gone eight months without hitting a new low after falling 20% or more from a 52-week high. We discussed how this period compares to prior periods and how the market performed going forward in this weekend’s Bespoke Report, but the chart below compares the S&P 500’s performance in the eight months coming off October’s lows to the eight months that followed each of the prior lows.
With a gain of 20.2%, the S&P 500 just barely moved into official bull market territory last week and avoided being just the third period (along with 1947 and 1957) of the fourteen in which the S&P 500 did not reach the 20% threshold for a bull market in the first eight months of a rally off the lows. You’ll see in the chart that the S&P 500 was also up less than 20% eight months after the September 2001 low, but in that period, it had already rallied 20% and was in a new bear market once the eight-month anniversary of the September low occurred. While the S&P 500 managed to make it into bull market territory last week, its gain in the first eight months of the rally is just over ten percentage points weaker than the average for all fourteen prior periods which helps to explain why, if you don’t have exposure to Technology and Communication Services, it may not exactly feel like a bull market.
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