Can The Bull Market Keep on Kicking? Or Is It Growing Tired?
The Answer May Surprise You!

June 23, 2024

Weekly Market Outlook

By Donn Goodman

Does the stock market (SPY, QQQ & IWM) have more momentum and upward energy to keep making more new highs?  Or are the markets running out of steam and need a pullback before going higher?  We will explore these questions and a few others in this week’s Market Outlook.

Welcome back, glad to have you with us for our update and Big View bullets (and don’t forget to watch the weekly video that follows which is most insightful).

A difference of opinions.

Last week a friend of mine who I used to do business with at my old firm called me to discuss the market.  He is certain that we are about to go through a correction that may turn into a meltdown.  His view, and several others that I follow, is that the markets are setting up for a very big correction, much more than the normal 10% that we go through almost yearly.

He gave me all the reasons that he believes (and gets from other writers, especially the numerous doom and gloom newsletters that exist only because they are so negative).  He rattled off issues that may exist with the stock market, (especially the NASDAQ 100, QQQ) that included “the market is too expensive, selling at elevated price to earnings ratios, price to book, etc.  Or that the market is being supported by just a few stocks that are driving all the returns”  (We addressed this in last week’s Market Outlook, if you have not read it yet, you can access it here).

My friend, an advisor, has a significant portion of his clients’ assets parked on the sidelines in conservative interest bearing instruments. His belief (and many others especially negative newsletter writers) is that we will get a 20-25% move down and hopefully be able to buy back into the market at 2022 prices.

My opinion is this is not likely to happen.  PLEASE, go back and review my recent Market Outlooks and reread and review all the charts and graphs, especially those that are put out by Ryan Detrick of The Carson Group that show what happens if the first 3, 4 or 5 months are positive in any given year and what typically transpires the remainder of the year or next 12 months. Additional charts show what occurs after the year starts with a 10% + return through May, especially in an election year.  All of these can be found in the Market Outlook archives within Big View.

Looking at the Bullish and Bearish cases.

I did some additional research to wade through the above potential issues that my friend and others have been suggesting.  I found lots of evidence that does not support that we will see a meltdown, as they suggest.  I will share some of the rebuttals with you in this column.

While I do believe the market has gone up well above expectations in the first half of this year and may certainly be due for a normal pullback or healthy correction, my views are supported that earnings have been stellar, earnings growth well above expectations, and the markets are fully expecting an easing from the Federal Reserve which should help to sustain market multiples and justify where the market sits today.  These facts should help keep the winds at our backs and not force any major crash, at least anytime soon.

The markets continue to make new highs and belie any of the negative soothsayers.  See an illustration from Friday below:

Exploring the Pros and Cons of why the markets may continue to move higher.  First, the reasons we should/could see a healthy, normal pullback (not a meltdown):

“Sam Stovall, CMT, believes the markets are in for at least a 5% correction”

I have been a longtime follower of Sam Stovall, currently the Chief Investment Strategist of CFRA Research.  CFRA is an independent financial research firm and Sam is a professional I consider to have high integrity.  I saw Sam speak a few times at conferences I had attended over the past 25 years hosted by major brokerage firms like Morgan Stanley, UBS and Wells Fargo.

Sam is now Chairman of the Investment Policy Committee where he focuses on history, valuations, and industry momentum strategies.  Sam is the author of The Seven Rules of Wall Street.  Before CFRA, Sam was with S&P Global for 27 years.  I read his work and trust his opinion.

Sam believes the stock market is in for a correction as a trio of unfavorable factors weigh heavily on equity prices.  He believes that we are in a bearish setup in interest rates, inflation and stock valuations.  His thoughts focus on these factors.

Inflation, he says, is declining but still above the Federal Reserve’s 2% target leading central bankers to project just one rate cut by the end of the year.  He continues with the fact that higher rates have triggered the longest-ever inversion of the 2-10 Treasury yield curve, the bond market’s famous gauge of a coming recession.   This indicator has been a reliable recession signal throughout history and economists have said that this time likely won’t be different.  (This writer believes that if the Government was not pumping so much money into the economy through two stimulus acts plus the expansion of money supply we would already be in a recession).

Stock valuations, according to Stovall, are also high by historical standards, which also contributes to his prognostication of a future negative pullback. The S&P 500 is priced at a 32% premium compared to its average price-to-earnings ratio over the last 20 years.  Tech stocks, which have dominated the market in recent years, are currently trading at a 68% premium.

“I think we’re really stretched, and we have to see some upward revisions in earnings estimates in order to justify these valuations” Stovall said in a recent interview with CNBC.  “It has only been tech that’s been outperforming the market.  I sort of feel that this is a jumbo jet that’s flying on one engine, and you wonder how long it will stay aloft” Stovall warned.

He believes the S&P 500 benchmark index is poised to dip at least 5% in the very near future.

One recent illustration which would support Sam Stovall’s view of an impending correction.  See below:

Exposure plans. "Per latest JPM institutional weekly survey, there's virtually no risk appetite to deploy fresh capital into equities. Investors continue to show no love for stocks in 2024."

Another concern of Wall Street analysts is that only the biggest mega-cap NASDAQ stocks are fueling this rally.  They cite charts like those below to point out why the market is faltering, and that negative breadth does not support the current market valuations.  See chart below:

Nasdaq-100 divergence (I). "The Nasdaq 100 continues to notch record high after record high. Many of its stocks are not only lagging, but they're falling to monthly, quarterly, or even yearly lows and below their 10-, 50-, and 200-day moving averages."

Another point of view.

Conversely, I was reading one of the many weekly/monthly newsletters I receive and happened upon a very bullish (and logical) argument from one of the writers at Stansberry which hit my email inbox yesterday.

This writer stated the obvious “we are in a secular bull market”.  History shows that it will propel stocks higher for years to come.  Much higher.  So much so he is betting that the value of the stock market will increase by 4 times in value by 2030.

That is a very bullish comment.  But what would make someone say that?

His assertion rests entirely with the Artificial Intelligence (AI) boom that has swept the world.  (by the way, Nvidia became the most valuable company in the world this past week with a valuation of $3.5 trillion, far surpassing Apple and Microsoft in doing so).

The AI buildout accounted for $90 billion of last year’s corporate spending.  Today analysts expect data center spending alone to top $1 trillion by 2027.  This is like what happened to the original internet buildout in the 1990s.  This AI trend will change the world as we know it and fuel a financial mania along the way.

According to this writer at Stansberry, “with major companies spending tens of billions of dollars to forge new AI paths, this bull market will soar to unimaginable heights.”  And many of the associated industries, not directly tied to AI, like hardware, software, mobile applications and internet security will all soar along with the AI buildout.

A few examples of corporate spending about to go through the roof and could easily fuel more speculative froth in the ongoing bullish stock market include:

  • Elon Musk launched a new company xAI that raised $6 billion from investors. That business is already valued at $24 billion. The $ will be used to take xAI’s first products to market to advance infrastructure and accelerate the research and development of future technologies.
  • Earlier in the month, Musk posed on X that Tesla would spend around $10 billion on AI this year. That is $3 to $4 billion towards Nvidia hardware.
  • In April, Meta Platforms (META) announced that its 2024 capital spending will be much higher than expected. It now plans to spend $35 billion to $40 billion this year up from its previous forecast of $30 billion to $37 billion.  Most of this will be to build out additional AI capabilities and you guessed it, towards Nvidia hardware.
  • Microsoft has recently invested $13 billion in OpenAI. That is the company that launched ChatGPT.  Microsoft is also upping its capital spending.  It spent $14 billion in the most recent quarter, a 79% increase over the prior year.  Again, most of that is targeted towards the AI revolution.
  • Alphabet (GOOGL) is also joining the AI race. The company reported capital spending of $12 billion just in the first quarter.  That was a 90% increase versus the prior year-even more extreme than Microsoft. According to Alphabet’s AI head, the Company plans to spend $100 billion over time to develop AI.   That will inevitably mean a massive amount of data-center infrastructure buildout and millions of AI chips.

When you put this all together this means that the largest tech stocks are already pouring many billions into AI development.  Recent research from Wealth Manager Bernstein suggests that Big Tech related spending will top $200 billion in 2024.  And the real possibility exists that these mega cap tech companies, along with a host of smaller ones coming into the space, could easily send tech investing to more than $1 trillion in the next few years.

This is the boom that could continue to keep the stock markets on this bullish train for several years to come, even if the economy were to enter a slowdown or recession.

Nvidia is not the only beneficiary of this AI build out.  There will be many other semiconductors, hardware, software and cybersecurity players.  But just for an interesting comparison, we provide Stansberry’s own research below on the potential growth trajectory for Nvidia (NVDA) to give you an added perspective of just how fast this one chip manufacturer might grow:

Why we like our quant, rules-based and formulaic investing models.

During my tenure in this industry, I have often said that human discretionary investing is fraught with emotion, miscalculations and plenty of errors.  I know.  I watched highly trained professionals for over 30 years try and guess which way the market was headed and where to place their “bets”.

Sometimes they were right and many times wrong.  The problem is that they were always second guessing themselves and instead of placing concentrated investments, they typically spread their risk out by over diversifying the portfolio.   This is normal money manager investing.

We do it differently.  (If you did not yet get a chance to read last week’s article when we discussed the algorithms we have developed, you can click here to read the article).

We use sophisticated algorithms that utilize unique investing “edges” to uncover specific market segment opportunities. We then take concentrated and measured risks to seek better than benchmark returns. This is the nature of quant-based investing.  It is rules based, unemotional and will keep the investor in “the game” if the underlying conditions are right.

This is also why our MG All-Weather portfolio returns (some real and some back tested) produce significantly better risk and return characteristics than those attributed to humans making similar decisions.  If you want more information about our investment models and All-Weather portfolios, please reach out to Rob Quinn at [email protected].

Some additional illustrations that reinforce the idea that the markets have not gotten ahead of themselves (or that they may be too expensive).

We now provide some economic/market charts that follows, to justify why the market may stay buoyant throughout the remainder of the year.  See below:

Growth fund flows. US growth funds saw the largest weekly inflow ever (+$11.9bn).

Market weakness in June does not predict a market top.  If we should see additional volatility or a pullback during the remainder of the month, it would be considered normal and not a market top.  See illustration below:

Also, weakness in June, usually results in a big move higher in July.  See the illustration below:

Why the NASDAQ could keep moving higher.  See illustration below:

Nasdaq vs. SPX profits. Since 2002, Nasdaq profits have risen from just 4.5% of S&P 500 profits to nearly 40% today.

Why elevated P/Es today may be justified.  See illustration below:

Valuation: then vs. now. “P/Es today are a full standard deviation lower than in the late 90s. On a FCF basis, the S&P 500 is 2 standard deviations cheaper.”

Some Wall Street analysts are concerned that small-cap stocks (Russell 2000-IWM) have not been participating in the large-cap stock market move higher. They suggest without the soldiers this market is doomed. 

We have commented several times in recent Market Outlooks that higher interest rates are having a detrimental effect on smaller cap companies who inevitably are bigger borrowers of capital to grow their businesses.  What we have also discovered in the below illustration, that the market is focused on rewarding companies with higher growth than on rates.  See below:

Growth vs. rates. "The recent divergence in the relative performance of the Nasdaq 100 versus Russell 2000 and the 10-year yield suggests that the market is increasingly focusing more on growth than rates.

Semiconductor stocks are expensive.  Maybe, but maybe not.

You will recall us discussing the CHIPS Act, which was passed in 2022 and authorized the US Government to spend  $280 billion on American semiconductor plants and equipment.  Our understanding is that the capital from this ACT is in the early innings of being deployed to these companies.  We also reference the chart below:

As referenced above, confidence in capital spending is growing as Corporations begin to expand their technology footprint.  Given that CEO confidence has recently rebounded back above 50.  This is a good and positive sign that CEO’s are more optimistic about the future and I suspect that is because technology is going to help streamline their businesses and help them with a tight labor market.  See illustration below:

In conclusion. 

We remain hopeful and optimistic that the financial markets can and will hold up.  We would not be surprised by any correction that could and should occur sometime this summer or early fall.  We also remind our clients, friends and loyal subscribers that there is approximately $6 trillion sitting on the sidelines in cash and conservative bond funds.  Some of this will find its way into risk on stock assets once people feel better about the economy, interest rates, etc.  One Fed interest rate cut could attract meaningful further inflows to the stock market and that could propel prices much higher from here.

We remain vigilant in utilizing our long-term successful investment models and All-Weather Portfolios that drive successful investment outcomes.

Thank you for reading.  We now turn it over to Geoff's video (filling in for Keith) and the team that puts together the BIG VIEW bullets that follow along with this week’s video.

We wish you an enjoyable and successful week in your investments.  It is hot in most of the country so we want to urge you to drink plenty of water/liquids, stay hydrated and enjoy beautiful early Summer evenings.  




Risk On

  • Volume patterns improved on balance across the four indexes. (+)
  • Looking at the number of stocks above key moving averages in the S&P, there was significant improvement across the board with everything now in positive territory. (+)
  • Value stocks are still underperforming growth but did improve on a relative basis, however, both are in bull phases and remain positive. Growth stocks are vulnerable to continued mean reversion that we highlighted last week. (+)
  • Interest rates backed off this week holding onto an accumulation phase and working off overbought status. (+)
  • Falling inventories contributed to Oil being one of the strongest performers and reclaimed its bullish phase. (+)

Risk Off

  • The 52-Week New High New Low Indicator, another important market internal, continues to deteriorate for both the NASDAQ composite and the S&P 500. (-)
  • Despite the potential blow off in Semis and Tech, other members of the modern family, such as IBB held up well and KRE regained into a warning phase as did IYT. (-)


  • Markets were flat on the week overall, however, the DIA held its move back into a bullish phase. As noted last week, NASDAQ was the most overbought and subject to mean reversion, which appears underway with bearish engulfing patterns in QQQ and SPY after setting a new all-time high. (=)
  • Only four of the 14 sectors were down over the last five trading days, however, a blow-off top in Semiconductors looks like a distinct possibility. (=)
  • Alternative energy got hit hard, down 7-8% on the week with soft commodities also taking it on the chin. (=)
  • Despite the sloppy price action in the S&P, market internals improved off of moderately oversold conditions. (=)
  • Risk gauges are unchanged from last week at a neutral. (=)
  • Foreign equities continue to underperform U.S. markets, however, emerging markets continue their outperformance and remain in a bull phase with bullish flagging action. A key reference point in EEM would be a close above $44.38, the 200-Week Moving Average.(=)
  • DBA closed in a weak warning phase and is now under pressure on both a short and longer-term basis relative to the S&P, signaling a potential double-top. (=)
  • Gold remains in a choppy trading range, moving back and forth above a rising 50-Day Moving Average. (=)

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