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Written by: Eugene Peroni | Peroni Portfolio Advisors
There is a proclivity among market watchers in the financial media to proclaim investment cycles as either bullish or bearish. These labels are usually assigned by measuring the percentage performance moves of the major market indices. However, these top-down assessments often can mask, or even dismiss, the true underlying condition of the market and its opportunities. I would argue that there are worthwhile investments in all but the worst bear markets. Even in the grueling bear market that persisted through the mid/late 1970s, there were rotating segments of strength — occasionally based on speculation — in a variety of categories ranging from oil and gas to casinos and technology. While we have not witnessed a bear market of that gravity or longevity since then, surely there have been numerous bear markets in the decades that followed including those triggered by the October 1987 market crash, the technology bubble of 2000 and the financial crisis of 2007–2008. Each proved to be relatively short lived and ultimately established a technical foundation for launching meteoric advances into uncharted territory. Identifying a bullish or bearish market can prove academic and conversational, but it can fall short in presenting the market’s true temperature reading, leaving investors sidelined at inopportune times.
Since the lows struck last October, I have steadfastly maintained a bullish outlook for stocks. This was not so much top-down guided as it was bottom-up inspired. An increasing number of stocks exhibited improving relative strength and accumulation trends after the initial lows struck in September and these instances further grew in October. Recognizing the growing numbers of attractive individual stocks representing diverse sectors and themes was an important factor for adopting a more constructive scenario for equities. So, as banter continues regarding an as-of-yet elusive deep recession, investors may be inclined to respond to the current bear moniker assigned by market pundits. From my perspective, the stock market is exhibiting consistent elasticity and durability reflecting the amplified technical drumbeat of a sturdy underlying market.
Based on their performances year to date the major indices are in positive trends, some more distinctive than others. The NASDAQ leads the pack by many hundreds of basis points. For growth investors this could underscore last year’s technology decline as an intermediate correction following years of dominance, rather than the onset of a secular bearish phase. In my view, the recovery in technology is more substantive than a mere oversold reaction as leaders in this category reengage with their longer-term uptrends and companies report generally better than anticipated first quarter earnings results. Therefore, since last year’s technology downturn was attributable to the Fed’s aggressively hawkish monetary policy, it is not a stretch to consider that the sector’s dominance year to date may be reflecting investors’ perceptions that the Fed may end its restrictive monetary policy later this year. This could present less fodder for bears to fuel their case going forward.
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