The Impossible Stealth Bull Market

“Impossible is just a big word thrown around by small men who find it easier to live in the world they’ve been given than to explore the power they have to change it. Impossible is not a fact. It’s an opinion. Impossible is not a declaration. It’s a dare. Impossible is potential. Impossible is temporary. Impossible is nothing.” – Muhammad Ali

Forget just how disappointing jobs data was last week.  Not only is that a lagging indicator of the economy, but even when payrolls were stronger, stocks remained range-bound.  Let’s do a quick cheat sheet on things that actually do matter for market movement in the near-term.

  • Small-caps have been strengthening, suggesting risk appetite is growing (bullish but only for small-caps, not necessarily for mega-caps).
  • High beta cyclical stocks have bounced relative to defensive sectors, but prior bursts of strength have been short-lived (neutral)
  • Utilities relative to the S&P 500 remain range-bound, unable to provide a convincing signal on the direction of volatility (neutral)
  • Lumber relative to Gold remains in an uptrend (though choppy) – important as shown in our award winning papers (bullish, particularly for small-caps)
  • Like Utilities, Long Duration Treasuries relative to Intermediate haven’t really broken to new highs even in the face of disappointing economic data (neutral)
  • Dollar direction seems more likely to be lower (neutral for overall stocks but likely bearish for bonds)
  • Emerging Market relative momentum may be about to turn positive (bullish for EM, neutral for US stocks)
  • Bullish sentiment is extremely low given just how close the S&P 500 is to new highs (from a contrarian standpoint, bullish)

Conclusion?  Sorry folks, but as much as I’d love to definitively pound the table on why headline averages will go up or down, we are in an unconvinced market for large-caps.  Small-cap stocks and emerging markets appear to be on the verge of taking the leadership reigns however.  That means for most investors, traders, and asset allocators who have chased large-cap outperformance, it may look like things aren’t moving very much when opportunities are increasing in other areas of the marketplace.

This is a holding pattern for everything that has worked in the past, making it feel like an impossible time to invest.  Impossible is temporary however, and does bring potential for those who are willing to accept that future winners can be the losers of the past.  That means a stealth bull market beneath the market’s surface may be underway, precisely in those stocks deemed impossible to invest in.  And only those who reposition aggressively now may actually see the benefits of that.

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.


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