June 20, 2024
Good morning,
A few months ago, we laid out a framework for what we considered to be the high probability path for markets one-year forward. It included a constructive near-term (6mo) outlook for equities due to an overall bullish market message (balance of technical signal evidence) with worries of a recession longer term (8-12mo); beyond the normal period that markets discount. In other words, it is beyond the scope of the market message.
As we step into the second half of June, it is fair to say that markets have done what they forecasted they would do – so far. There are no technical signals of a recession flashing at this point, but while the balance of technical evidence still leans bullish, it is by a much smaller margin than it was a few months ago. A series of new highs has been made on the S&P 500 Index (and the NASDAQ, of course), but each higher high has been supported by fewer stocks. The broader market, outside the Magnificent Pick-a-Number has been mixed at best.
Market tops are gradual events, usually taking weeks/months to develop completely, compared to market bottoms, which develop much faster (days/weeks). If a recession is out there on the horizon somewhere, a market top will develop months before economic data reflects it.
From a risk management perspective, it is not a question of will there be a recession in 6-8 months, it is that there is non-zero chance of one.
With a bullish leaning market message, even if it is an underwhelming one, it is too early to become overly cautious. We still expect fears over inflation to subside before fears of a recession rise. We probably have a few more weeks, like the past few weeks, ahead of us.
Be well,
Mike
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