Four More Reasons the Bulls Are Smiling

Last month, I wrote about some bullish events taking place in Three More Bullish Signals The Bears Don’t Want To See, and it was a very popular blog. Well, today, I’ll take it one more step and list four new reasons the bulls will continue to smile.

We think the Fed is likely done hiking

With inflation coming down quickly, we are in the camp that the Fed is likely done hiking rates. You can read more about what Sonu had to say about the recent inflation data here.

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One clear sign the Fed is indeed done is that the upper limit of the Fed Funds rate is now up to 5.25%, which is finally more than year-over-year CPI, which is 4.9%. As you can see below, the previous eight hiking cycles needed this ingredient before the Fed was done, and we are now there.

What if they are indeed done? I wrote about this in The Last Hike?, but the bottom line is stocks tend to do quite well, higher a year later eight out of 10 times and up a very impressive 14.3% on average. I keep hearing on tv how it is bearish once they stop hiking, but the data just doesn’t show that.

Stocks aren’t loved

We’ve noted many times in the past six months that one reason to expect higher equity prices was that the masses keep betting on lower prices. This matters as the crowd is rarely right looking back at history. I wrote about this more in Is Anyone Bullish Part 2.

Well, we have more data to support this in the form of a recent Gallup poll that asked what the best long-term investment would be. Wouldn’t you know it, stocks/mutual funds came in at the lowest level since 2011! Given how poorly stocks did last year and the constant barrage of negative news, maybe this isn’t a surprise, but from a contrarian point of view, this is another reason to think the path is higher for stocks.

Now is weak, but the future looks better

Some of the business and economic surveys we’ve seen lately have been weak, that is true, but what has our attention is that the future is looking better.

The New York Fed does some great work here, and a recent survey of Business Leaders showed that expectations for business activity six months from now were at the highest level since September 2022.

I find this worthwhile, as they focus on the New York and New Jersey area, in other words, the heart of the banking world. If most of these business leaders see better times coming, that is something the bulls should embrace.

Positive year-over-year … finally

Here’s a big one that just happened, and it has many bulls smiling.

The S&P 500 was negative year-over-year on a monthly basis for 12 consecutive months, but it just ended positive at the end of April (mainly thanks to the 9% drop in April 2022 dropping off). What does this mean? Well, we looked, and when previous long streaks ended, historically it suggested the bulls would start to have some fun.

As you can see below, the S&P 500 has never been lower a year later, higher eight out of eight times, with a very impressive 15.3% average return. Yes, there are many things to watch, but when you layer this one with the other bullish signals we’ve noted so far in 2023, we continue to hold an overweight to equites in our Carson House Views.

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