October 30, 2023
Good morning,
The S&P 500 Index (SPX), down -2.54% last week, its third down week in a row, will likely be down for its third month in a row tomorrow (four months in a row is a real rarity). On Friday, SPX closed down -10.7% from its July 27th high, officially putting SPX into “correction” territory by definition. That was fast, which makes it feel worse. Let’s look at markets technically and then macroeconomically and see what those two perspectives have in common. The common ground between the two is most likely to be the high-probability path forward for markets.
When an equity correction leads to excessive pessimism readings, the typical question that comes up is whether the market has reached the end of the correction or whether it has had the initial leg down in a new bear market. In that case, rebounds would prove to be unsustainable bounces and excessive pessimism would become the norm rather than the exception. Signals of a bear market would proliferate.
The current correction has caused some technical damage – they always do. Trend lines have reversed downward, support zones have crumbled, new lows are beginning to grow but have not yet tripped a bearish signal. For declines into correction territory that lead to bear markets, more bear signals register than what we have seen so far. We have extreme pessimism now, we have the beginning of the strongest seasonal tailwind of the year for stocks, and we do not (yet) have a proliferation of bear market signals. Given all this, a bounce up for equities is the high probability move ahead, technically. The strength of the bounce will be the “tell” as to whether it’s sustainable or not.
Many pundits are calling for a recession in early 2024, but the economy’s resilient growth continues to confound them. I think stocks have corrected based on the spike in yields in the bond market. I don’t think stocks are (yet) discounting a recession. I believe a recession is coming, but perhaps not until the end of 2024. It has been another round of delayed but not ultimately denied for our Godot recession.
If these two views hold any water, then it is likely we could have a nice bounce rally, but with a recession still looming, not the kind of rally that is a resumption of the bull market. I remain cautious – very.
Be well,
Mike
Disclosures
Investment advisory services offered through Robertson Stephens Wealth Management, LLC (“Robertson Stephens”), an SEC-registered investment advisor. Registration does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. This material is for general informational purposes only and should not be construed as investment, tax or legal advice. It does not constitute a recommendation or offer to buy or sell any security, has not been tailored to the needs of any specific investor, and should not provide the basis for any investment decision. Please consult with your Advisor prior to making any investment decisions. The information contained herein was compiled from sources believed to be reliable, but Robertson Stephens does not guarantee its accuracy or completeness. Information, views and opinions are current as of the date of this presentation, are based on the information available at the time, and are subject to change based on market and other conditions. Robertson Stephens assumes no duty to update this information. Unless otherwise noted, any individual opinions presented are those of the author and not necessarily those of Robertson Stephens. Performance may be compared to several indices. Indices are unmanaged and reflect the reinvestment of all income or dividends but do not reflect the deduction of any fees or expenses which would reduce returns. A complete list of Robertson Stephens Investment Office recommendations over the previous 12 months is available upon request. Past performance does not guarantee future results. Forward-looking performance objectives, targets or estimates are not guaranteed and may not be achieved. Investing entails risks, including possible loss of principal. Alternative investments are speculative and involve substantial risks including significant loss of principal, high illiquidity, long time horizons, uneven growth rates, high fees, onerous tax consequences, limited transparency and limited regulation. Alternative investments are not suitable for all investors and are only available to qualified investors. Please refer to the private placement memorandum for a complete listing and description of terms and risks. This material is an investment advisory publication intended for investment advisory clients and prospective clients only. Robertson Stephens only transacts business in states in which it is properly registered or is excluded or exempted from registration. A copy of Robertson Stephens’ current written disclosure brochure filed with the SEC which discusses, among other things, Robertson Stephens’ business practices, services and fees, is available through the SEC’s website at: www.adviserinfo.sec.gov. © 2024 Robertson Stephens Wealth Management, LLC. All rights reserved. Robertson Stephens is a registered trademark of Robertson Stephens Wealth Management, LLC in the United States and elsewhere.