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Written by: Eugene Peroni | Peroni Portfolio Advisors
Two separate seismic declines within a timeframe historically renowned for heightened market volatility put the bull market to the test. The first incident unfolded August 5, just days into the August-October period which is often fraught with technical and cyclical headwinds for stocks. The Dow Jones Industrial Average (DJIA) plunged over 1,000 points, or 2.6%. By no means was it the worst decline in recent market history, but it was a stunner given the relatively complacent market attitude reflected by the CBOE Volatility Index (VIX) leading up to that selling rout. During that session the VIX skyrocketed to 65, indicating panic-stricken levels of selling among traders, but what soon followed further defined and reinforced the market’s bullish foundation. Within a short time, the DJIA had moved from a dramatic low near 38,800 to a fresh all-time record high above 41,000. September — historically the cruelest month of the year for the stock market — ushered in another round of expansive swings, the most notable of which was the DJIA’s single-day reversal from a 700-point dip. This remarkable turnaround soon delivered the DJIA and the S&P 500 to new record highs. I believe these recurring feats of elasticity and durability have set the stage for additional gains by year-end. I think it also implies that the election outcome may not have a profound impact on the market.
The market has continued to rein in price and sentiment excesses through orderly and routine rotation. While this is especially noteworthy from a bottom-up perspective, it is also evident top-down. Unlike last year, or even at certain points this year when the technology-rich Nasdaq substantially outpaced other major indices, the current tally shows the S&P 500, Russell 3000 and Nasdaq in a virtual dead heat. Given the last two months’ heightened volatility, this is an impressive rebalancing act that further emphasizes that this bull market is not built on a single pedestal. It is not dependent on a single sector or theme, or even last year’s rave — the Magnificent Seven.
In the May 6, 2024 Viewpoints, “Could This Bull Become a G.O.A.T.?” I forecast that this bull market could become the greatest of all time, citing the broad and diverse sector and theme participation that has characterized the market for more than a decade. Observing the market’s thick-skinned and resilient tone through August and September strengthens this prediction. Even a casual market watcher may be aware of Wall Street’s uncanny ability to navigate through headline events that would seem to be roadblocks for advance. Yet, the market continues to penetrate through walls of uncertainty. I have found that the market often is at its best when its behavior contradicts current news and instead extends its investment focal point to the horizon where it may foresee economic, monetary and geopolitical glad tidings. Also, small and mid-capitalization stocks (SMID) are generally exhibiting much improved relative strength since last October. As the fourth quarter gets underway, the S&P 400 Mid-Cap Index may be technically well-positioned to outperform the S&P 500 and Russell 3000 through the fourth quarter and beyond. This is an additional bullish factor considering gains in SMID could reflect positive strides in investor confidence.
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