When Is A Bull Not A Bull?
Back from vacation and it appears I didn’t miss all that much. Another Trump indictment. Russia is still looking like a loser in Ukraine and the Yankees are still in third place. I know, I know. Retirement is hard work, I needed a break.
One thing that changed but not really, is the market is now “officially” in Bull Market territory. Yeah, OK.
The loose definition of a Bull Market is when market indices are 20% higher than their previous low and to me, that really doesn’t tell the true story but because the media says we are in a new Bull Market, I believe them.
See, I like it simple but unfortunately this Bull market is not that simple. The market has rallied on the backs of perhaps 5 or 6 major tech stocks. Great for their market caps but is it really a bull market when 6 stocks have that sort of outsized reach as far as the major indices are concerned?
I think not.
My definition of a true Bull Market is when the S&P rises 20% from it’s previous low and maintains that level for three months. There might be a small break below that level but historically it is short lived and markets quickly regain their Bull Market footing.
I am not a true technician so I am sure the technicians out there can make a case for any number of scenarios but I will tell you this, to me a true Bull Market needs full participation and at this point, we don’t have it. That’s not to say the rest of the S&P won’t continue to rally as well, but right now its 6 stocks and a mule.
Next on my agenda is the Fed. With this mornings fairly positive print on inflation I may lean towards the Fed “Pausing” on interest rates. The argument can be made that raising interest rates over the last year or so has had an impact on inflation and miraculously it hasn’t thrown the economy into a recession. The argument could also be made that the economy has adjusted to inflation and the inflation rate has come down pretty much on it’s own.
Remember, months ago I postulated that inflation eventually cools without outside intervention (The Fed) simply because consumers adjust. They buy less, they buy smarter, they don’t buy. If people are not buying your exorbitantly priced product, the only sane thing to do is give up a little in the way of profits and regain market share with reduced prices. When people were desperate, they paid your obnoxious prices but now that the balance is returning to the consumer, prices will adjust as well. It does take time and it can be painful but in the end, the consumer wins.
I believe in the latter because the former hits the wrong people the hardest and with all the liberals out there I am not sure how they can’t see that rising interest rates impacts low to middle income people way more than it impacts the upper middle class and rich. You want to divide the country on economic lines, keep raising rates.
To add to that little disaster, the amount of credit card debt is rising faster than the inflation rate and that tells me one thing, people are through their pandemic money, their savings and are now using their credit cards to stay afloat. Mix that fact in with the absurd rates credit card companies are now charging and you can see mini disasters brewing all over the country.
The point to all this is that I believe enough is enough. The Fed has done what it was expected to do to combat inflation. The economy hasn’t tipped over, yet. People are still working and most are moving past the pain of the pandemic. Any more rate increases may do what the Fed has been trying to avoid, create an environment for a retrenchment.
One last vent if you don’t mind. I have brought this up before and I will bring it up again until someone explains why gas prices have remained so high in the Northeast when the price of oil has come back to Earth. The last time oil was near where we are now was in March and gas at the pump in March was 3.19 a gallon while gas yesterday was 3.59 a gallon.
As you know, I am master of supply-demand economics and pretty much everything we do has some element of it. Sometimes that equilibrium gets knocked out of balance. The Russian invasion of Ukraine was the latest example. Oil skyrocketed because of the various supply disruptions that potentially could happen. Oil traders jumped on it and boom, a rally. These are always short lived. Prices meet the supply/demand model almost every time eventually. Not now. The price of oil has been steadily coming down and over the course of my lifetime, the price of gas follows pretty much within a week or two. Not this time. Is it something to do with the East Coast? Is it a blip? Or is it the oil companies taking one last shot at maximum profits before every country on Earth starts taxing windfall profits? I don’t know.