A Bull Looks at 40

Middle age is a tricky time for many people. There are usually mixed emotions as you leave behind your formative youthful phase and get serious about aging well. The transition to becoming an over-the-hill gang member can sometimes be tough. My 39th year was one of trepidation about the impending change of first digits. But it came and went without much of a hiccup. What was all the fuss about?

The fresh outlook I took upon reaching middle age helped me get to the next phase of life. It led to a wonderful phase of personal and business success. With the backing of two strong partners, one at home and one on 'the Street', I found myself enjoying getting older and perhaps a bit wiser. Yes, luck was a big factor too, but sometimes the harder you work the luckier you get.

Often the ride is hard to enjoy while the signposts go whizzing by faster and faster. You tend to get caught looking backward when it's the road ahead that you should be concerned about. It's here the global risk markets find themselves. The new highs markets are trying to make aren't surprising in the context of the larger picture of a secular bull market that is already 7 years old. The trend is definitively higher.

I was provided a link to this chart (below) by David Morrison, CEO to the Stars at Eight Capital, via his Trader Extraordinaire, Stuart Smith. These are two guys with skin in the game of institutional investment management who have loads of savvy and street smarts. Like me, they are die-hard optimists of the equity cult and continue to grind it out. But it's not a bad gig if I do say so myself.

B of A Global Research's Larry Tantarelli authored this look at the market that gives us the big picture from a technical point of reference. As a global macro-focused writer, I don't often get into the weeds of the arcane art of technical analysis, but charts make it helpful to visualize the market from 30,000 feet. Follow Larry on Twitter: @bluechipdaily.

So here it is. Sorry for the small font, but you get the picture. Notice that for all the consternation over the Covid stop/start, and all the Fed's ineptitude, the bull market endured and is now flourishing. The cyclical bear markets that marked those two challenges are hardly visible when viewed in the bigger context. Cyclical pullbacks are a 'feature not a bug' of secular market moves. We still have more to go.

As readers of this space will attest, I have often been guilty of short-termism. It's like I'm going down a river constantly changing on which side of the canoe I'm paddling. You're gonna get to the same place no matter what, so why not relax and enjoy the ride?

With that said, I think there are times to embrace the rising trend and times to get a bit more cautious. This is one of those cautious times. As I pointed out in last week's missive, the market got ahead of itself in December and is now correcting. Choppy sideways action is a healthy way to digest the over-bought over-exuberant move off the October lows. But the longer-term uptrend has been reinforced once again. Liquidity conditions have become more positive in prospect. The phrase "don't fight the Fed" works both ways.

The missing element now is a negative data point (think: a surprise inflation uptick or a sudden consumer retrenchment) that tests the market's resolve. I can't see the market holding current levels if data turns hostile to the now popular soft landing thesis. Does anyone believe that the feckless Fed can thread the needle of a costless return to 2% inflation without a bit more economic pain, or conversely, a touch-and-go reacceleration of prices? I don't. But that's what is priced into the simultaneous rise of the bond and stock markets. Blame the monster in the closet - $6tn of sideline cash - if you want, but something doesn't add up here.

So as optimistic as I am about the secular trend, I am urging you to at least consider the possibility of a better entry point in the not-to-distant future.

Let's see if this advice ages well.

Risk Model: 3/5 - Risk On

The RSI over-bought signal, indicative of a risk-off environment, is still the major fly in the market ointment. The U.S. market is also flirting with a negative signal from the 200 DMA risk-off level (I set at +10%) and represents more price risk as a result. The tame volatility and complacent AAII sentiment are notionally bullish for risk-taking but can change quickly should anything go bump in the night.

As for Dr Copper, he is still prescribing antibiotics for the ailing global economic patient. A weak Eurozone and a deflationary China are mostly to blame. The U.S. stands alone amongst the developed world with a forecast of 2%+ GDP that refuses to quit. Fiscal profligacy (Congress's tax deal for example) is mostly at work here as the U.S. spends itself into a frenzy during a pre-election run-up. It's hard to see all those projected rate cuts happening smoothly if this keeps up.

The U.S. election is an economic non-event, as both parties are pro-tariff and anti-austerity. The confidence-sapping prospect of a contest between the Octogenarian and the Narcissist has only a tangential effect on growth. No wonder my Florida kin folk are applying for their Canadian citizenship. I hate to tell them that JT vs PP is like Biden vs Trump, but at half the volume.