The Future of the Equity Bull: Can the Market Rally Continue?

Good Day,

The ongoing surge in the equity markets has left investors both exhilarated and cautious. The S&P 500 has exceeded all expectations, prompting strategists to revise their price targets for 2024 upwards after an impressive 25% gain from the October 2023 lows. However, amidst this euphoria, a lingering question looms large—can the equity bull continue to run?

Looking back at history provides some insights. The S&P 500 recently crossed the 5,100 milestone, a significant achievement that historically indicates positive near-term forward returns. Past instances show that after hitting such "round-number" milestones, the S&P 500 has recorded average price returns of 1%, 5%, 10%, and 12% in the subsequent one, three, six, and 12 months, respectively, with positive returns 79% of the time. Additionally, when November, December, January, and February have all been positive for the S&P 500, as they have been in this run, the index has seen an average price return of 18% in the following 12 months, with positive returns 100% of the time.

Fundamentals are also holding strong, market leadership is diversifying, and earnings are becoming more supportive, as evidenced by the S&P 500's consecutive quarters of year-over-year earnings growth in Q4 2023.

However, there are cautionary signals as well. The NASDAQ 100 Index has seen its longest stretch without a significant pullback since 2014, and the S&P 500's consistent positive returns over the past months suggest a robust run. Historical data indicate that market corrections are not uncommon, with 5% pullbacks occurring thrice a year on average and 10% corrections happening annually since 1929. Moreover, bullish sentiment indicators, often seen as contrarian signals, are on the rise.

In my analysis, while a potential pullback might be on the horizon, it is unlikely to derail the long-term bull market. A brief pause could reset the market for future gains and is expected to be mild, especially considering the ample excess liquidity waiting to re-enter the market at attractive entry points. Investors should view any near-term downturn as an opportunity to deploy excess cash into the market.

As we navigate these dynamic market conditions, staying informed and strategic in investment decisions will be key. The equity bull may pause momentarily, but the long-term outlook remains optimistic.

Stay tuned for more updates and insights into the fascinating world of finance.

Warm regards,

Alexander

P.S.

DID YOU KNOW? Around $6.5 trillion is sitting in money market accounts right now. While the S&P 500 is up 8% year to date, total money funds added more than $150 billion in assets through the first two months of 2024, or about $50 billion more than they did in the same period last year. At some point a chunk of that money will seek alternative investments as rates come down......possibly real estate? (WSJ)

DID YOU KNOW? Inflation is proving to be sticky.... The February producer price index, which measures pipeline costs for raw, intermediate and finished goods, DOUBLE the 0.3% forecast from Dow Jones and comes after a 0.3% increase in January. Excluding food and energy, core PPI accelerated by 0.3%, compared to the estimate for a 0.2% increase. Another measure that also excludes trade services increased 0.4%, compared to the 0.6% gain in January. On a year-over-year basis, the headline index increased 1.6%, the biggest move since September 2023. Is FED monetary supply less effective in a much more services-reliant economy? (CNBC)

DID YOU KNOW? "Y'allywood!" Is Atlanta the Hollywood of the South? It appears so, as a huge volume of film and television production is happening in the area and drawing stars from around the globe to buy high end homes, fueling that market. Georgia enacted enticing state tax credits and incentives for film and video production in 2005 and the payoff has been nothing short of spectacular! (WSJ)

DID YOU KNOW? The influx of retirees flooding into southern Appalachia (Georgia) is transforming the region from poor, serene and rustic to a bustling retirement haven attracting retirees from Northern states as well as Southern states that have become less affordable recently. The boomer migration to North Georgia, east Tennessee, the Carolinas and western Virginia is reshaping housing prices, traffic patterns, restaurant options and how local governments cope with something they haven’t had to handle before: explosive growth. Dawson County, Georgia home prices are up notably more than national averages as a wealthier audience moves in driving up local prices. (WSJ)

DID YOU KNOW? IKEA - a source for affordable furniture globally - is further expanding its price cuts - up to 20% - in 2024 across all of its markets aiming to dial back price increases that were introduced in 2022 as the cost for transportation and raw materials decreases. They intend to grow market share. Might the growing awareness of extreme corporate profits be driving this, or is it diminishing demand.....or both? (CNBC)

“The definition of success is when you have no keys,”

— Ahmet Ertegun. When he arrived at each of his homes around the world, there was always an assistant there to open the door for him.

DID YOU KNOW? Private insurance companies are required by law to balance those risks with assets, typically a mix of plain vanilla investments, and hedges that include more complicated products like catastrophe bonds or reinsurance. They feed that stockpile with revenue from premiums. As the risks rise, so do the prices, sometimes to levels beyond what state regulators or policyholders will accept. When market conditions become too hostile, private insurers limit their exposure in a different way: They stop writing new policies. (Bloomberg)

DID YOU KNOW? Might ALDI be the solution to food-flation? The German mega discount food market, better known outside of the US, plans to open 800 stores in the US with a $9 billion investment! A good food store is almost always a healthy neighborhood addition.

DID YOU KNOW? The number of family offices in the world has tripled since 2019, setting off a new race among private equity firms, hedge funds and venture capital firms to attract their investments. The number of family offices worldwide topped 4,500 last year, with a concentration in North America. Experts say family offices now manage $6 trillion or more, and their ranks are growing. (Preqin)

DID YOU KNOW? Ultra-high-net-worth individuals ($30 million+ net worth) now account for 38% of all individual giving in the world. 400,000 people account for more than one-third of the world’s charity. The world’s 3,200 billionaires (or 0.00004% of the global population) account for 8% of individual philanthropy. (Altrata)