The S&P 500 has rallied over 20% from the October lows of 2022, and now many seem convinced that we’re in a new bull market. While “technically” that could be true, it could also be a “head fake” similar to what we saw in 2001-2002 and again in 2008-2009. In 2001-2002, following the tech boom, the index had a +21% rally and then the market turned around to make new lows, down -32%. In 2008-2009, following the GFC, we had a 24% rally in the S&P 500, only for it to drop subsequently by -27.6%.
Now that we’re in technical bull market, a few big US banks have raised their year-end price target. Bank of America raised its year-end price target on the S&P 500 to 4300, Deutsche Bank to 4500 and Goldman Sachs to 4500.
Source: MacroVisor
We don’t know if this rally is for real or whether it is a head fake. What we do know is that the Volatility (VIX) index is below 15, indicating nervousness about the market has receded. The rally has been on poor breadth, i.e. only a few stocks (the Mega Tech names) have led the rally. We need this to broaden out for the bull market to be sustainable.
June has historically been a month for sells offs. Market sentiment and positioning has also been indicating that this rally might be getting exhausted. A lot will depend on central bank actions on rates, which in turn will depend on inflation data, which in turn is influenced by consumer sentiment and employment strength. So watch this space.
Remember there is nothing magical about 20% gains in markets, and no guarantees that we follow past patterns. But still…
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