In my last post I laid out all the reasons I think the market will soon crash and enter a secular bear market of sideways trading for several years. In this post I want to lay out the counter-argument for why that’s wrong:

  • If we entered a secular bull market in 2009, which was confirmed in 2013 by the breakout above the 2000 and 2007 peaks, then we still have a ways to go before the bull run loses steam. Secular bull runs in the past have lasted way longer than 12 years: we had one from 1942-1973, and we had another from 1982-2000.
  • We have no reason to enter a secular bear market other than high valuations. We are not in a recession, in fact we are just getting out of one and are about to re-open the whole economy for the first time in a year, which should ignite growth.
  • Carrying on that second point: there needs to be a catalyst for a bear market to begin. Something must fundamentally change that makes investors not want to own stocks. If it’s not a recession, then what could that thing be? Generally it’s bad recessions that kill bull runs, and strong bull runs can even withstand mild recessions and keep the market up-trend intact.
  • Low interest rates and the Fed Put. The Fed won’t let it fall. Pure and simple. This is the strongest reason. Every time Powell speaks he says the same thing: We are nowhere close to our goals in terms of employment and inflation, and Fed policy will be highly supportive until we are. In his interview on Thursday he seemed almost annoyed that he has to keep saying that. He’s not going to step in and rescue the markets anytime they have a correction.
  • There is still no alternative (TINA). Bonds may be rallying but do people seriously believe investors are going to abandon Fed-supported stocks in favor of Treasuries yielding 1.5%? Come on. Bonds would have to go a lot higher in order to provide a realistic alternative to stocks.
  • Plus, the Treasury market is self-correcting: when yields get high enough, bonds become more attractive to investors, causing them to buy up more bonds, which sends yields lower.
  • Stimmies incoming: When the $1400 checks hit, tons of people are just going to plow that money right into the market, tech stocks in particular.
  • The stock market volatility has been relatively contained to the tech sector. While the Nasdaq may be down more than 10%, the Dow is not even down 4% and the S&P is only down about 5%. Megacap tech like Apple, Microsoft, Amazon, Google and Facebook are getting battered, but not nearly as badly as the hot speculative names that have had ludicrous runs over the past year. And the big dogs are all great companies that should hold the broader market up.
  • FB, for instance, is trading at 25x earnings. MSFT, GOOGL and AAPL are all in the 30s. AMZN is the outlier at 78x earnings, but that’s normal for AMZN.

And the final reason, although not the strongest (the strongest is the Fed), is that the Nasdaq is getting into oversold territory on the daily chart:

We’re looking at an RSI of 32 right now. There’s going to be a snap-back rally soon. The main question is whether it’ll take us to new highs, or fizzle out beforehand.

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