Traders work the floor of the New York Stock Exchange during morning trading on August 15, 2022 in New York City.
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Economists, Wall Street analysts, hedge fund managers and public prognosticators have been all over the map lately in trying to divine the ways of Wall Street.
Some have suggested the market has already bottomed and the bear market is over.
Others are calling for another 20% decline in the S&P 500, which is down nearly 20% in 2022.
Still others are forecasting a complete collapse that would be worse than 2000-2003 or 2007-2009.
Some analysts are doing the math also on projected reductions in earnings for the S&P 500, giving a range for the market to bottom between 3,000 and 3,400 sometime between now and 2023, but those estimates are all quite varied as well.
It’s a wild time in the forecasting community these days, when it comes to markets, the Federal Reserve, the direction of the economy and all the attendant risks going forward.
Perspective on this bear market
There is a better and simpler way to view this bear market in stocks.
First, there are no meaningful positive signs that it’s over.
Second, several criteria must be met for a new cyclical or secular bull market to begin:
- The Fed must complete its tightening cycle.
- Technical factors demand a re-test of the June lows.
- That momentum low (June) is often followed by a price low (TBD) before the market can bottom.
- The VIX should spike to above 40 as sign of capitulation among the last of the bulls.
None of those criteria have yet been met.
The Fed is still raising rates, likely by another 0.75 percentage point when it delivers its decision on interest rates next week.
Some notable economists anticipate the Fed will jack up rates by a full point.
Fed speakers have indicated they’re willing to raise rates further and — at least theoretically — keep them elevated throughout 2023. This isn’t fertile ground for a new bull market.
We also have yet to retest the lows.
The VIX, or so-called “fear gauge,” a volatility measure of the markets has not seen the panic levels normally associated with a capitulation bottom.
It is, indeed, a rather strange phenomenon that various volatility readings in stocks, bonds and commodities like oil are not running in lockstep, despite very tight correlations in their respective price actions.
I have yet to hear a good explanation as to why the equity market VIX is depressed relative to the realized volatility in the stock market.
That makes me worry that this bear market is not over yet.
The bottoming process
Noted technical analyst John Bollinger schooled me long ago on the bottoming process.
A momentum low hits the market first, followed by a subsequent “bear market rally” (or rallies) and finally a price low, when the key averages take out the momentum low by a small amount and then begin to reverse course.
A catalyst of some kind usually triggers the beginning stages of a new bull market.
In short, there’s a great deal of chirping going on right now among the chattering class, much of of it is noisy and imprecise.
A simpler and more straightforward analysis is called for here, relative to the jawboning in which many are currently engaged.
Simply put, meet all the aforementioned criteria and start again.
Less noise, more history: A simple lesson in a rather complex environment.
In the meantime, long-term investors should stick to their disciplines and take advantage of a bear market that one day will come to a rather “unexpected” and “unforeseen” end.
— Ron Insana is a CNBC contributor and a senior advisor at Schroders.
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