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How strong is the bull market?


Heaven can’t wait. The lowering of rates, yes. The FED has already warned that it will not release it in March. Does not matter. The S&P 500 index rises vigorously and does not suffer from vertigo. It surpassed the peak of 5000 points for the first time. After a long two-year hiatus, records are dropping like flies. There are ten, all from January. He climbs because he feels his back is well taken care of and not because he discounts a hasty FED.

The economy is a rock and inflation declines pari passu and is obediently heading towards the 2% target (where it has already been installed for the last six months, according to the definition used as a guide by the FED). That’s enough and more than enough. The rate cut will come in addition, and when it comes it will be welcome. But it is not the central argument. Long rates, for example, rose above 4% – they closed on Friday at 4.19% – and do not cause harm either. They are simply the pit of a larger, juicier peach.

The CEOs of the companies themselves have been the last to find out. Only in the last measurement made by The Conference Board, days ago, did optimism prevail among them when evaluating the economy, which had not happened since the first quarter of 2022. 32% of business leaders indicated that it is better than six months ago (compared to only 18% in the final quarter of last year). And 36% expect progress to be consolidated in the next six months (versus 19% in the previous survey). A healthy economy will benefit business, they say, via lower inflation, Fed rate cuts, and faster growth in both activity and productivity.

Although they are not unaware of the risks remain: electoral uncertainty, first, by a wide margin. Also worrying are wars, deglobalization (which may not exist, but is perceived as threatening), and tensions between China and the United States. Of course, insiders are still vehement net sellers of the shares of their own companies. The economy will be fine, but perhaps the quotes will not. Nothing prospered more than the relationship of prices to expected profits. And it is assumed that, when it comes to profitability, no one knows more than those who are inside. It would seem that the micro requires more help from the macro.

The Dow Jones Industrial was the first of the major indices to set a new all-time high, already in 2023. The S&P 500 followed in its footsteps. Of course, before any other, the Nasdaq 100 shattered all its top marks, again and again, and with ease. The rally is a festival where the actions called the magnificent seven shine. But the Nasdaq Composite (the 3,000 companies listed there and not just the mega-stars) also came close to its highs, which date back to November 2021. It will be enough to blow out the candles and climb 0.42% to achieve it. The last will be the first?

This week, the fifth in a row on the rise, those furthest behind were, on Friday, those who advanced the most. The Russell 2000 – the basket of small companies, and, by the way, not the cream of the paper – was ahead of all its peers: +1.5%. But, so far this year, it has not yet recovered its value at the end of 2023 (-0.8%). If the Stock Market anticipates, the Russell 2000 is the corner that still does not dare. He jubilantly rode Powell’s early pivot and then felt the postponement of his debut. It is not the canary in the coal mine, the one that is introduced first to detect the possible lack of oxygen. It is, on the contrary, the last one to be resurrected and thus proves that the air was completely purified of toxic gases.

There, paradoxically, is the vein with the greatest potential for growth in the Stock Market. They are papers that have no chance if the economy does not strengthen, if financial conditions are stagnant and if rates do not fall. Their multiples are modest. Their participation in the portfolios is reduced out of logical prudence, and because they lack momentum when everything else flies. They still have to climb a 22% slope to return to their 2022 highs. The bullfight is unstoppable. But the medium-sized steers are missing. That is where you have to take the pulse of the bull market.





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