Home Forex Buy the dip: Multi-year rebound shows ‘fear of a bear planet’ remains implausible

Buy the dip: Multi-year rebound shows ‘fear of a bear planet’ remains implausible

by SuperiorInvest

It’s easy to reflect and think we could have approached things differently, but it’s now clear that the initial fear of running into another major bear market was a bit overblown.

Looking back, we tend to see past declines as opportunities once overcome. On the other hand, anticipating possible “future” declines often seems too risky. Focusing on avoiding crises can lead us to miss the advantages and important purchasing opportunities that come with them.

At the same time, whenever there is unanimous consensus about something, it is important to start questioning it.

We saw this recently with the widespread certainty of an impending recession that never happened. In early 2023, predictions of a stock market “crash” dominated the consensus.

However, today the sentiment has completely changed. Currently, 91% of fund managers expect a near-term (next 12 months) decline in interest rates, indicating a projected “soft” landing and encouraging high market confidence.

Expectations for lower rates in the short term

The S&P 500 has reached a new all-time high, surpassing the previous peak on January 3, 2022, in the range of 4,818 after a gap of 511 trading days (or 747 calendar days in total).

Notably, this marks the sixth-longest duration that has been necessary to reach a new all-time high.

Number of days between all-time highs in the S&P 500

Number of days between all-time highs in the S&P 500

and also hit new all-time highs this week.

S&P 500 weekly

Over the past five years, the S&P 500 has returned 80%. This shows that patience, once again, has rewarded the long-term investor.

Many people made decisions, such as staying on the sidelines, influenced by the poor performance of the “small caps” and the perception that they could not “keep up.” However, in reality, most sectors, especially the largest ones, are doing well.

Small Cap Technical Chart

Small Cap Technical Chart

Examining the chart above, from the September 2022 lows, an uptrend is evident for small cap industrials, with a notable gain of +44%. Additionally, the small-cap discretionary sector has demonstrated solid performance, posting +39%, while the small-cap technology sector has shown a respectable +27% gain.

S&P 500 vs. Russell 2000

Since its October 2022 lows, the S&P 500 has risen +35%, while the Russell 2000, since its October 2023 lows, has seen an increase of around +20%. It is a well-established trend that small caps often lag large caps during bull markets, like the one we are in currently. Therefore, witnessing more compelling performance than the S&P 500 from small caps is quite typical.

However, on a positive note, small caps are hitting new highs compared to previous attempts, as the chart indicates. This serves as another sign of an uptrend in the market.

Money Market Fund Assets

Finally, a potentially record level of $6 trillion in money market accounts could benefit stocks and the broader economy.

Let’s embrace the bull market (recognizing the uncertainty of its duration) while recognizing that bear markets are an inherent risk to the financial landscape.


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Divulgation: This article is written for informational purposes only; It does not constitute a solicitation, offer, advice or recommendation to invest as such and is not intended to encourage the purchase of assets in any way. I would like to remind you that any type of asset is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains in the hands of the investor.

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