The Bear Market Is Over

It is my belief that the bear market is over.

This is the subject of much debate. Lots of people, Michael Burry included, think speculation is returning to the stock market and that we will make a lower low one day. I’ll take the other side of that. But the easy part of the rally is over, and we’re going to have a lot of chop and flop over the next six months before we make a new high, rather than a lower low.

So, now is not a terrible time to make some strategic investments.

Why do I believe this? Because we had very bearish sentiment readings a couple of months ago. If you recall, the AAII Sentiment Survey showed that investors were even more bearish than they were in the financial crisis. As you know, I pay close attention to sentiment, and while I do think sentiment during the financial crisis was worse, it wasn’t by a lot. I can tell you that my sentiment readings got pretty low. And part of this game is to objectively examine your own feelings.

I’ll put it in layman’s terms:

  • Inflation was high
  • Which caused rate hike expectations to rise
  • Which strengthened the dollar
  • Which swung a wrecking ball across all risk assets

Now that inflation is trending downward, this process is running in reverse. I expect successive inflation readings to be a bit lower. This will make the Fed recognize progress on fighting inflation and taper off the rate hikes somewhere between 3.50% and 4% Fed funds. Of course, if you wait for that to happen, you will miss the entire trade. The market is in the process of discounting it.