When a Bear Market Isn't

• Despite the majority of evidence to the contrary, much of the financial media continues to push the agenda of a “bear market”.
• The reality is all three key market sectors turned up last fall.
• Meanwhile, inflation in the US has cooled ever so slightly, opening the door to a possible pause in interest rate hikes.

This past weekend, as I was catching up on some of the reading about markets I had set aside, I stumbled upon a social media post discussing the ongoing “bear market”. The agenda of the piece was not to talk about the reality of “the market(s)” but rather discrediting anything and everything the current US administration has done. 

I’ve talked a number of times about how a normal economic cycle plays out between the three key market sectors of Treasuries, stocks, and commodities. A simple way of looking at it is market sectors are rising, it’s a bull market. On the other hand, if market sectors are falling then you have a bear market on your hands (there are other definitions we’ll look at in a few moments). 

Here’s what I see on the various long-term monthly charts: 

• US 10-year T-note futures (ZNM23) were in a major (long-term) downtrend that started with a bearish key reversal during August 2020. This lasted until a bullish 2-month reversal was completed during November 2022, a pattern that was followed with a new 4-month high posted during March 2023.
• The S&P 500 index ($INX) posted its own bearish key reversal during January 2022 indicating the major trend had turned down. And while these downtrends tend to last about 18 months, putting an initial bullish turn during June 2023, the index completed a bullish spike reversal during October 2022. This was again followed by a new 4-month high posted during February 2023.
• There is no singular commodity to view as the general leader, but if we want to take weather derivatives out of the equation, we can look at gold’s cash index (GCY00). Here the monthly chart shows the previous major uptrend topped during August 2020 before completing a bullish key reversal during November 2022.

If I combine these timelines, we see 10-year T-notes and gold generally moved together while the S&P 500 marched to the beat of its own drummer. Ok, so let’s expand the definition of a bear market for stocks only. The consensus among those in the know is an index becomes bearish when it loses 20% of its peak value. Here we see the S&P 500 posted a high of 4,818.62 during January, meaning it was still considered in a bull market until it dropped below the 20% retracement mark of 3,871.28. This first occurred during May 2022 before the downtrend was extended to a low of 3,491.58 as part of the bullish spike reversal during October 2022. The index closed this past Friday at 4,124.08, back above the bearish threshold, so there’s that. 

To recap: All three market sectors are in major uptrends at this point, though they’ve flattened out a bit the last couple months. Additionally, the S&P 500 moved out of bearish territory and stayed out going back to this past March. But what else can we look at to tell us if the US is as bad off as those in the faux news industry would have us believe? 

• At the end of April 2023, US boxed beef markets posted their highest monthly closes since August 2021. Why is this important? It tells us consumers were not backing away from high-priced beef, a good economic indicator for the labor market.
• Speaking of labor, the April US nonfarm payroll increased by 253,000 as compared to a pre-report guess of 180,000. And if that weren’t enough, the April unemployment rate was reportedly 3.4%, tied for the lowest level since 1969.
• Yes, inflation is still a thing, though some of it is indeed proving to be transitory. Last week saw the April Consumer Price Index show a year-to-year increase of 4.9% as compared to the previous 5% increase, while the Producer Price Index was up 2.3% versus the previous 2.7%.

Let’s take a minute to talk about inflation. In April 2022 the current US administration announced it would be releasing oil from the Strategic Petroleum Reserve to curb the price spike in global crude oil caused by Russia’s invasion of Ukraine in February 2022. The domestic spot WTI contract (CLM23) hit a high of $130.50 during March 2022, before falling to a low of $63.57 this month. Additionally, Mother Nature has shown a friendlier side to global grain production, helping the Barchart National SRW Wheat Price Index (ZWPAUS.CM), the intrinsic value of the market, to fall from a high of $12.2350 during May 2022 to a low of $5.4750 one year later. Similarly, the Barchart National Corn Price Index (ZCPAUS.CM) peaked at $8.05 during April 2022 before falling to $6.01 so far in May 2023. The Barchart National Soybean Price Index (ZSPAUS.CM) climbed to a high of $17.3375 during June 2022, driven by global weather issues, before dropping to a low of $13.00 last October with room to still move lower. 

The bottom line is, as of this writing, the three key market sectors are showing long-term uptrends, certainly not fitting the definition of a bear situation. Unless one is trying to tell yet another false tale.