Get Ready For The Bull
Is the bear market over?
It is not quite over yet but we are getting closer. We are nearing the time when risk on is the active choice.
Please be mindful this is not financial advice or a forecast. Instead, we are simply sizing up where the markets are compared to the economy.
From a macro-perspective, things could get pretty bad. There are a lot of signs that we could face some serious economic headwinds. The debate about recession is often more a technical one. However, we see some areas where the likelihood of downturn is rising.
Of course, this should come as no surprise. Everyone and their brother is talking about the potential of a recession. That is why we can start to look at the idea of the bull starting to run.
In short, it is likely that, by this point, the markets have priced in recession.
Markets And Economy Separate
It is important to separate the economy from markets. The first point of importance is markets move a lot quicker than economies. Think of it as a jet ski versus an oil tanker. The former will maneuver a lot quicker than the latter.
Markets have a mind of their own. Unfortunately, fundamentals have little to do with them. In the end, it is the collective emotional consciousness of the participants. We know markets are driven by fear and greed.
For the last 16 months, we were mostly in a risk off environment. The flow of capital was one of safety. Cryptocurrency got crushed along with high P-E tech stocks. These are risk on assets, ones that were dumped.
When the reversal happens, i.e. sentiment changes, these are going to be what people pile into. That is what moves markets. Hence, even if the economy is going down, the markets can rise due to how money is responding.
For example, a sign would be a move out of stablecoins into other cryptocurrency. By the same notion, a move from the Home Depots to Google or Amazon would also indicate this shift.
Sideways Grind
We might be in a period of sideways trading for a while. This could mean some volatility as the markets react to headlines. In the end, we likely have a breakout to the upside.
When will this happen? That is always the billion dollar question.
My guess is 2024 is going to be a stellar year for risk on assets. This means we could see the moves starting in the second half of this year. That said, the entire year (2023) might be accumulation. Those who see what is coming are going to want to be positioned.
Initially, my view was that Q2 might kick things off. I wrote about this last fall. However, due to macro fears, it looks like it could be slightly delayed. Either way, those who wait for 2024 might find that a good portion of the move took place before they were even aware.
Bull markets can surprise us. When everyone is talking about how bad things are, that is when markets tend to turn.
We starting to see signs of things cracking in early 2022. While the numbers were still holding up, there were areas where many people noticed something was miss. Here we sit, a year later, and the storyline is still the same. This is key.
When we look at these types of situations, we see that markets tend to reverse about halfway through the economic decline. Again, markets are more agile than economies. So, while I believe the economy (globally) is still going to face headwinds, perhaps deep into 2024, markets will move a lot sooner.
Are we there yet? Not likely.
The key is we might be getting close though.
See how things progress in the second quarter. We could find that H2, 2023 is a time to load up. The fourth quarter could start a run that makes most of us very happy.
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