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Is this a Cyclical Bear within a Structural Bull?

Updated: Apr 30, 2023

Stocks rallied and posted one of the strongest daily gains since earlier in the year. The recession many investors were expecting did not come in the first quarter as the Commerce Department reported GDP rose at a rate of 1.1% from January to March.

Although it is lower than the 2.6% growth from the fourth quarter of 2022, consumer spending remains robust. Business spending pulled back dramatically. But a solid labor market drove consumer spending, as evidenced by personal consumption rising 3.7% for the quarter, reflecting strong consumer spending on goods and services.

Stocks also rallied today after the release of corporate earnings from mega-cap technology names such as MSFT, GOOGL, META, and others. AMZN reported after the market close and beat with shares rallying higher after hours.

There are more positive earnings surprises and beats than misses for the quarter. Companies are still reporting revenue growth, but profit margins continue to decline. The stock market appears to be rallying not so much on the backdrop of earnings but because the numbers are better than many have feared.

The focus for investors will soon turn toward the Federal Reserve meeting next Tues/Wed. The Fed Funds futures and current inflation data suggest another FED interest-rate hike of 0.25 next week.

The stock market is forward-looking. It is a leading indicator and a better proxy of the state of the economy.

US stocks have an inherent built-in upward bias, at least from a long-term perspective (i.e., decades and several decades). It is not wise to bet against long-term uptrends in stocks.

Nonetheless, there are times when investors need to be selective, as cyclical bears can occur at any time. But because the stock market is a leading indicator, it will signal a change in the long-term trend and a structural shift in market sentiments many months and quarters before the economic top and bottom.

We understand why the bears are adamant SPX will retest the bottom of its 2009 structural uptrend channel (now at 3,076) because of macro-economic conditions (i.e., higher inflation, restrictive fiscal and monetary policies, recession concerns, and aging global demographic trends), geopolitical climate (Ukraine-Russia war, China-US conflict, and Cold War II), and fundamental basis (equity valuations still high).

The above conditions paint a poor picture of the future outlook for US stocks. Since 1929, most bear markets, or around 15, have been accompanied by rising inflation. Historically, rising inflation has been consistent with US bear markets.

However, despite the 27.54% decline in the S&P 500 Index last year, the structural uptrend channel from the 2009 market bottom remains intact (see the monthly chart).

The ability of SPX to find crucial support at 3,491.58 (10/13/22), coinciding with the middle of the 2009 structural uptrend channel (blue dash line - 3,720) and the 50% retracement (3,504) from the Mar 2020-Jan 2022 rally is technically significant. It suggests the Jan-Oct 2022 decline remains a cyclical bear decline trading within a structural bull trend.

Nonetheless, based on current macro-economic, geopolitical, and fundamental conditions, coupled with narrowed market breadth, a negative outside month in Jan 2022, and a subsequent monthly death cross-sell signal in Nov 2022, it is likely SPX will continue with its choppy, volatile, and neutral trading environment over the next several months to years.

Note that from mid-2014 to mid-2016 and 2018 to 2020, SPX also traded sideways before resuming the 2009 structural uptrend channel.

Does this imply SPX will also transition toward a series of sideways trading ranges between 3,750-3,800 and 4,325 (near-term), 3,500-3,600 and 4,650-4,800 (intermediate-term), and 3,000-3,300 and 5,300-5,500 (long-term) over the next 1-2 years?

Source: Courtesy of

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