Is a True Bull Market Move About to Start?

CAMS Weekly View from the Corner – Week ending 7/17/2020

July 20, 2020

The overall stock market storyline for 2020 is pretty easy to describe:  Cliff-dive followed by a rocket ride ending in (to this point) flat-lined.

That is the overall stock market story.  There are indices that have performed far better in light of being comprised of the individual companies whose stock prices have performed well in 2020.

Overall though, as depicted by the S&P 500 Index, 2020 reflects a zero percent performance.

There’s That Word Again

Our internal process of monitoring the health of the stock market is comprehensive.  There is too much to share briefly but very simply we can succinctly describe the process as both a “top-down” view which is looking at broad market based vehicles and measures to gauge the landscape of the stock market.

Simultaneously, we use a “bottoms-up” view which focuses on sub-industry as well as individual company price behavior to see what if anything is developing at a more micro level.

In recent weeks the word “constructive” has been chirped in-house as an almost involuntary verbal blurt in reviewing the top-down/bottom up processes.  Kind of a “here and there” occasional description.

In passing days this description has increased to the point of stating “there’s that word again” in observing ourselves as we verbalize our observations.

What is going On Here?

This has been our follow-on phrase internally as we process the price behavior characteristics collective market participants are leaving in the wake of their market maneuverings.

Importantly, it is vital to remember collective market participants are looking out into the near-future (not days but months) to ascertain how to price investments today.  They are constantly focused on the future not today.  They will look at today’s events only through the lens of how or even if it alters their future view.

Through this future view walks us to that word again:  Constructive.  Why are these top-down/bottoms up views leaving off such a consistent and constructive pricing behavior?  This shouldn’t be happening right?  Doesn’t the market know the state of society, economy and political uncertainty?

Of course it does.

This is why we ask with insatiable curiosity just what are collective market participants seeing down the timeline.  Are we about to see an upward move for the overall stock market rather than just a few handfuls of individual companies performing to the upside?  Wouldn’t that be a surprise for most people?

Markets Seemingly Exist to Surprise the Most People   

If you have a casual market discussion with a few veteran market participants the above observation will most probably be shared.  In fact, it has become a market adage itself in light of its multi-decade truth.  That is, when most people hold a certain view of the stock market history offers caution on that view; as yet again, you may be on the cusp of experiencing this well-established market adage.

Is the market readying itself, current day, to invoke this adage yet again?

For my part, as a long-time market participant who has experienced first-hand this adage played out countless times I cannot help but ask with a curious smile:  Lady market, are you about to do this to us again?

Importantly, the above is not offered through the lens of sticking the proverbial finger in the wind and stating the opposite of what it registers.

Rather, it is observing the deep behaviors of the market and realizing that said behaviors are pointing to something that is opposite of all that we hear, from every walk of life we interact with, relative to impromptu stock market discussions.  The consensus seems to be unanimous in said discussions:  “yep, the stock market is in trouble soon.”

This is not an edition meant to scream “bull market bull market” and yet, with the experiences above we cannot help but ask and in-turn share that seemingly we have yet another near-perfect setup for lady market to do her historical thing and surprise the most people.

If you have read recent editions you may recall a chart of the Dow Jones Industrial Average that we have been chronicling.  It has been uncertain in its trend via the important red line we offered on the chart.  This link updates this chart and it too has become – you guessed it – constructive.  Hmmmm….   http://schrts.co/qHjUFfyH

I wish you well……

Ken Reinhart

Director, Market Research & Portfolio Analysis

Portfolio Manager, CAMS Spectrum Portfolio

Footnote:

H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP).  This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”.  A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.