The Current Market Volatility: A Roller Coaster Ride
Over the past two weeks, we have witnessed extreme fluctuations in the financial markets, with both the S&P 500 and Nasdaq experiencing sharp losses followed by their best weekly performances of the year last week.
Key Indicators Point Towards a Strong Bullish Market
- Bitcoin’s recovery
- Surging Treasury bonds
- Record highs in gold
All suggest a strong bullish market sentiment, especially with the Federal Reserve preparing to cut rates in the near future.
Analysis of the Current Market Situation
The duration of the current bullish market cycle, which has lasted 21 months, matches the shortest on record. However, historical data shows that the average length of a bullish market is 33 months, indicating that this cycle could extend until May 2025.
Under similar conditions, the average gain during a bullish market is 63.6%, suggesting that the S&P 500 could potentially reach 5,852 points.
Overall, the current macroeconomic conditions, including disinflation and strong earnings growth, are expected to sustain the upward movement in the market, despite potential corrections along the way.
Key Data Points to Monitor for Market Strength
1. CPI ex-Shelter Inflation
The CPI ex-Shelter inflation rate was +1.07% year-over-year as of August 2024, showing clear disinflation compared to the previous month. This rate is below the Fed’s 2% target and historical averages, indicating a possible need for further policy adjustments.
2. Relationship Between Treasury Bonds and Fed Funds Rate
The spread between the yield on 6-month Treasury bonds and the Fed Funds rate suggests a potential 1.0% rate cut over the next six months. This relationship could serve as a bullish catalyst if macroeconomic conditions remain resilient.
It’s important to note that this information is for informational purposes only and should not be considered as financial advice or a recommendation to invest. Investors should conduct thorough research and analysis before making any investment decisions.