Is this bull market a fake bull market?

This summer, stock markets started to recover. The Nasdaq even entered a bull market (+20%). Is it sustainable?

After six disastrous months, markets have peaked again this summer. So much so that the Nasdaq technology stock market even entered a bull market with a 20% gain. A priori, this is rather surprising given the many uncertainties: inflation, interest rates, the war in Ukraine or the situation in China. And we go…

So are we really on board a bull train? Or is this just a short summer break and a bullish rally in a market that remains largely bearish?

For some analysts, the financial markets are experiencing a “1982 moment”, the start of a new bullish phase.

For some analysts, the financial markets are experiencing a “1982 moment”, the start of a new bullish phase. It is Tom Lee, the co-founder and head of research at Fundstrat, who confirms this. In his opinion, when bad news stops driving markets lower, it’s time to revise your analysis. In reality, the situation would be similar to August 1982, exactly 40 years ago, when the market started a strong upward movement.

Meanwhile By the summer of 1982, the United States was gradually recovering from a period of stagflation, caused by the oil shock of 1979. The US Federal Reserve (Fed), led by Paul Volcker, had to raise interest rates drastically to bring down inflation. Key interest rates had reached a record level of around 20% to counter double-digit inflation. And the United States had slipped into recession.

In his memoir (“Keeping At It”), Paul Volcker explains that inflation had slowed significantly by the summer of 1982. That’s why the Fed cut interest rates three times in July this year. And in mid-August, it was then stock market guru Henry Kaufman from Salomon Brothers who gave the signal for an upswing. According to him, inflation and bond rates would fall. Any profit for the stock market.

On August 12, 1982, the Dow Jones index closed at a low of 777 points.. Five years later, in August 1987, the index was above 2,700 points, a jump of 250%. The crash of October 1987 abruptly ended this uptrend, but that’s another story…

Could we see a similar recovery this year, 2022, and experience a new 1982 moment? This summer, markets began to price in that the US Federal Reserve may begin to ease rate hikes as peak inflation may be behind us.. But that’s probably going a bit too fast, because the Fed has only taken four monetary tightening steps since March. And interest rates remain at a very low level of 2.25-2.50%. Not enough to really counteract inflation.

During the movement that began in 1982, markets could also count on President Ronald Reagan’s pro-business policies and his corporate tax cuts. But today, President Joe Biden instead tends to raise taxes with the recent announcement of a tax on corporate share buybacks.

It will also be difficult to repeat the 40-year streak of falling interest rates (from 20% to 0%!) that just ended this year. Some speak of a single major “bull market” on the stock markets, which lasted from 1982 to 2022 thanks to lower interest rates. A huge bull market that managed to overcome various major crises: 1987 stock market crash, 2000-2002 tech stock crisis, 2008 financial crisis and Covid crisis.

What strikes each time is a kind of resemblance in coming out of the crisis. Whether it was 1982, late 2002 – early 2003, March 2009, or even March 2020, few investors believed a sustained bull market was possible. Even today, many investors, even some well-respected Wall Street names, missed the market rally. It remains to be seen if staying on the sidelines was really wrong. On Friday, they might even have smiled as they saw the Nasdaq Composite Index fall 2%.

#bull #market #fake #bull #market

Leave a Comment

Your email address will not be published.