Over the last week or so, I have seen quite a few comments about the S&P 500 such as the ones below:
"We could hit 10k sometime around 2028 but I wouldn't be surprised with 2027 either."
"At this point it's clear that nothing will sink stocks. Even a full blown recession event like 2008 wouldn't be able to do much damage to the stock market at this point. In fact it would be bullish because Fed would print trillions to pump stocks again."
“I've been saying for years now that SPY 6000 at the 2024 santa Claus rally and 7500 by end of 2025, then 20% every year forever thereafter due to fiscal debt and QE into the quadrillions.”
And, I think this one is my favorite:
"It doesn't matter. If they cut 25 bps we rally, if they cut 50 bps we rally and if they cut 75 bps we rally. Even if they cut nothing we rally. Stocks will go up no matter what and there is nothing anyone can do about it. Not even G-d can stop this."
I mean, if people feel that not even God can stop this market, who am I to disagree?
And, now that the Fed has entered what seems to be a path of lowering rates, the bullishness seems to be ratcheting up even further, if that is even possible. I mean, is there a power greater than G-d that would also be ineffective at stopping this market?
I assume many now view the Fed as more powerful than God.
I think I am making my point. But, does that mean I think we have finally hit the major top?
Not just yet. Those who have read my analysis for many years would likely remember that my long-term target for the S&P 500 was set many years ago at 5350-6000SPX. And, if the current structure continues to develop as we are now seeing, we will likely even exceed that target.
But, does that mean that the market will go up forever?
Absolutely not. I am viewing this as likely being the final wave before a multi-decade bull market comes to an end, as I have outlined in many prior articles. While I was unsure of late whether the market had one more extension left before it completed this long-term structure, the action seen on 9/11 of this year (which is quite curious) provided us with our initial indications that this rally has another wave to be seen before a long-term top can be struck.
But, the more bullish that the public gets, the more likely they will be unable to recognize the risks that are causing the rot beneath the market’s surface. While I was perusing the comments section of various articles, I ran across this discussion which caught my interest:
“I just finished doing my research about the market during the 2008-09 global financial crisis. It was interesting that in September of 2007 the Fed also began aggressive rate cutting starting with 0.5 % . During the twelve months that followed the Fed reduced the interest rate by a total of 2.75 %.
How did the market do? From its peak in October 2007 to March 2009 S&P 500 Index was down by about -57%. During the same period the sector that lost the least was the S&P 500 Consumer Staples Index, down about -28%.”
Clearly, this is a factually correct comment, and I found it quite interesting. However, the response was something I found even more interesting:
“But is the GFC the proper analogy from history for today?
Too many Subprime and Alt-A mortgages were given to Main Street based on unverified borrower incomes and inflated collateral values. Wall Street then built a mountain of derivatives on top of that weak foundation, and sold it all around the world.
Where is the equivalent of that today?”
Now, I am but a simple analyst and not a prophet. So, I cannot tell you what the media will attribute as the cause of the next bear market. But, I can say unequivocally that there will be another financial crisis which can be much worse than the one we experienced in 2008-2009. And, this comment above evidences the public’s lack of understanding of just how precarious our banking system is today.
While there was one major issue that caused the banking crisis in 2008-2009, 5 major risk factors are sitting on bank balance sheets today which can cause an even worse financial crisis. These risk factors include major issues in commercial real estate, rising risks in consumer debt (approaching 2007 levels), underwater long-term securities, over-the-counter derivatives, and high-risk shadow banking lending.
So, when the questioner asked whether the GFC is the proper analogy for today, the answer is yes and no. While we will not likely see consumer mortgage-backed securities cause an implosion in the financial sector, there are many more risks sitting on bank balance sheets today, any one of which can cause another implosion.
Now, imagine the financial collapse we could experience if two or three of these factors begin to implode at the same time. Another factor that also seems quite similar to what was seen right before the Great Depression is the ubiquitous view that “not even G-d can stop this market.”
"We will not have any more crashes in our time."
This was said by John Maynard Keynes in 1927, two years before the stock market crash which led to the Great Depression.
"Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as they have predicted. I expect to see the stock market a good deal higher within a few months."
This was said on October 17, 1929, a few weeks before the crash, by Dr. Irving Fisher, Professor of Economics at Yale University. Dr. Fisher was one of the leading US economists of his time.
"I cannot help but raise a dissenting voice to statements that we are living in a fool's paradise, and that prosperity in this country must necessarily diminish and recede in the near future."
This was said by E. H. H. Simmons, the President of the New York Stock Exchange, on January 12, 1928
"There will be no interruption of our permanent prosperity."
This was said by Myron E. Forbes, President, of Pierce Arrow Motor Car Co., in January 12, 1928.
And, these are just a few of the popular quotes of their day. And, by the way, has anyone heard of the Pierce Arrow Motor Car Company? You have not? Well, that is because they went bankrupt during the Great Depression. But, I digress.
While at this time, I do not have any evidence that the market has yet topped, I am still expecting that this rally will come to a conclusion and likely within 2024, and will then potentially turn down to begin a long-term bear market. But, before I am willing to trade that downside bear market aggressively, I will be seeking strong evidence that confirms that potential as we move into 2025.
In the meantime, I expect the confidence in this bull market to hit even further extremes, and when we do top, there will likely be almost no one expecting anything other than a continuation of the current bull trend. But, for all those who understand non-linear analysis, the continuation of the current bull trend is an impossibility within a non-linear environment such as the stock market.
As George Santayana wisely said,
“Those who do not remember the past are condemned to repeat it.”