No, this is not a bear market

The volatility of Q1 2018 convinced many that the bull market in equities was finished. Now, signs pointing to the opposite are there for all to see.

Bull and bear
Source: Bloomberg

Top calling is an ancient and long-lived form of performance. Since 2009, when equities found a bottom and began to move higher, it has moved to an art form. Having undergone a period of unpopularity in 2010-2011, it revived in 2012, as the eurozone crisis reached its height. As equities wobbled in 2015 and 2016, the bears roared that China and oil prices would derail the great recovery. They fell silent after the US election, when US President Donald Trump’s victory failed to produce the forecast bear market. But the gyrations of early 2018 gave them a chance to proclaim anew the gospel of falling stocks.

Even now, as a number of indices around the globe make new highs, their siren voices can be heard. Apparently, the fact that the S&P 500 is 4.5% (as of 5 June) off its all-time highs, having reached that level some four months ago, is somehow proof that equities are doomed to fall.

A calmer analysis would show a different truth. On 4 June, US micro-caps and small caps hit new all-time highs. The NASDAQ 100 hit a new monthly closing high in May, and has continued to gain since then. The FTSE 100 soared to a new all-time high in late May. Even eurozone markets, for so long the underperformers thanks to the strength of their currency, have found the strength to rally.

The iShares micro-cap exchange traded fund (ETF) is below. It has been in a steady uptrend since mid-2016 on a daily chart, and even longer in a weekly timeframe:

The Russell 2000 underwent stomach-churning pullbacks in October 2016 and again in February 2016, but these proved to be wonderful buying opportunities:

Finally we have the NASDAQ 100 – the push back to all-time highs may not have been accomplished with the ease of 2017’s gains, but a new high is less than 40 points away:

The US macro picture remains strong. Jobless claims continue to fall, new home sales have yet to peak and total retail sales are at an all-time high. Even the yield curve, which came up as the latest bogeyman earlier in the year, is still some distance from inversion, and even if/when it does invert, there is, on average, at least 18 months before a new recession does start.

This is still not a bear market.

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