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Buy the Dip: Multi-Year Rebound Shows 'Fear of a Bear Planet' Remains Farfetched

Published 01/22/2024, 08:13 AM
Updated 02/29/2024, 04:17 AM
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  • Contrary gloomy predictions, investors that bought the 2022 dip are now sitting on juicy returns as the S&P 500 hits a new high
  • Likewise, investors that resisted the selling pressure of the last bear market have regained their positions in full
  • While we do not the length of the new bull market, markets keep teaching us that long-term investing remains the easiest path to success
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  • It's easy to reflect and think we could have approached things differently, but now it's clear that the initial fear of stumbling into another major bear market was a bit exaggerated.

    Looking back, we tend to view past declines as opportunities once they've been overcome. On the other hand, anticipating potential "future" declines often feels too risky. The focus on avoiding downturns can lead us to miss out on the upsides and significant buying opportunities that come with them.

    At the same time, whenever there's an unanimous consensus on something, it's 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 shifted. Currently, 91% of fund managers expect a short-term (next 12 months) decrease in interest rates, signaling a projected "soft" landing and fostering high confidence in the market.
    Expectations for Lower Short-Term Rates

    The S&P 500 has reached a fresh all-time high, surpassing the previous peak of January 3, 2022, in the 4818 range after a gap of 511 trading days (or 747 total calendar days).

    Notably, this marks the sixth-longest duration it has taken to attain a new all-time high.


    Number of Days Between Record Highs in the S&P 500

    Nasdaq and Dow Jones also reached new all-time highs this week.S&P 500 Weekly

    Over the past five years, the S&P 500 has posted an 80% performance. This goes to show that patience, once again, has rewarded the long-term investor.

    Many individuals made decisions, like staying on the sidelines, influenced by the underperformance of "small caps" and the perception that the Russell 2000 couldn't "keep up." However, in reality, most sectors, especially the major ones, are performing well.Small Caps Technical Chart

    Examining the chart above, since the lows of September 2022, a bullish trend is evident for Small-cap Industrials, boasting a noteworthy gain of +44%. Additionally, Small-cap Discretionary has demonstrated a robust performance, recording a +39%, while Small-cap Tech has shown a respectable +27% increase.

    S&P 500 Vs. Russell 2000

    Since its lows in October 2022, the S&P 500 has surged by +35%, while the Russell 2000, since its lows in October 2023, has seen an increase of about +20%. It's a well-established trend that small caps often lag behind large caps during bullish markets, like the one we're currently in. Therefore, witnessing more convincing performance than the S&P 500 from small caps is quite typical.

    However, on a positive note, small caps are presently achieving new highs in comparison to previous attempts, as indicated by the chart. This serves as another signal of a bullish market trend.

    Money Market Fund Assets

    Lastly, a potentially record level of $6 trillion in money market accounts could benefit equities and the overall economy.

    Let's embrace the bull market (acknowledging the uncertainty of its duration) while recognizing that bearish markets are an inherent risks of the financial landscape.

    ***

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    Disclosure: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, or recommendation to invest as such it is not intended to incentivize 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 with the investor.

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