It is very rare to see growth take the lead from value early in a bull market cycle, which is exactly what happened in 2023. Ergo, this cannot possibly be the start of a new bull market, but rather a very serious spasm in the context of what remains a very long bear market phase.
Nothing moves in a straight line and the reality is that the S&P 500 has enjoyed some of its best multi-month performances in the context of what was still a fundamental bear market. The historical record is replete with examples of exactly what we are talking about here, underscored by Bob Farrell’s Market Rule No. 8 .
At the onset of a fresh bull market, we normally see broad-based participation with the S&P 500 equal-weighted index outperforming the cap-weighted index by just over three percentage points. This has not been apparent thus far and the equal-weighted index has lagged the cap-weighted index by 9.5 percentage points. Moreover, since last October, the equal-weighted index has risen by 15 per cent, a far cry from the 25 per cent average once a true bull market takes hold.
But we come back to the woeful underperformance of the financials because we can really only trust the longevity of a market upturn that follows the sort of intense drawdown experienced in 2023 once the banks and asset managers begin to show leadership. This has been lacking and a big challenge, in our view, to the “start of a new bull market” calls being published in recent months.
We add that the rebound in analyst earnings-per-share revisions that has the bulls salivating has been so feeble that the end-of-2023 estimates are still some 10 per cent below where the forecasts were at the start of 2022; and still 7.5 per cent lower now for the end of 2024 than was the case back then as well.