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After the dot com bubble burst in early 2000, the stock market entered into a multi-year bear market. Not only was the bear market brutal from a duration and magnitude standpoint, it was not a smooth downward trend either. Because of the vicious countertrend “bear market” rallies, the market was difficult to short and even more difficult to find a bottom. During the 2000-2003 bear market, the Dow Jones mounted three significant rallies, that ultimately failed prior to the market bottoming. Below, the rallies 2000-2003 Dow rallies are illustrated on the SPDR Dow Jones ETF (DIA - Free Report) :
Image Source: Zacks Investment Research
Is 2023 Setting Up for a Repeat?
The war in Ukraine drags on, inflation is stubbornly high, and equities gave up gains in February to finish lower. For these reasons, even after the rally the U.S. equity market has had off the lows so far in 2023, many investors are still on guard. However, below, we will list 6 pieces of evidence as to why this time is different, including:
1. Fed Pivot Potential: While the Fed has remained hawkish, U.S. investment banks believe the Fed may pivot at some point. For example, Morgan Stanley (MS - Free Report) is in the camp that the fed may cut rates in December of 2023 (and slow rate hikes before that). The Fed controls the market’s liquidity and is the most vital factor to follow.
2. 200-day Moving Average Historical Evidence:The S&P 500 Index has exceeded its 200-day moving average for more than 25 days. Over the past 73 years, the index has never reached bear market territory (20% correction off highs), cleared the 200-day for this amount of time, and made fresh lows. SPDR S&P 500 ETF (SPY - Free Report) versus 200-day moving average:
Image Source: Zacks Investment Research
3. Entering a Seasonally Strong Period: Equity markets are entering the strongest quarter of the four-year presidential cycle.
4. Positive Earnings Reactions are Becoming Common: Despite the market pullback early on Wednesday, several stocks shot higher on massive volume after strong earnings reports, including Duolingo (DUOL - Free Report) , First Solar (FSLR - Free Report) , and Eventbrite (EB - Free Report) .
Image Source: Zacks Investment Research
Nvidia (NVDA - Free Report) , which gapped up on earnings last week, barely budged on Wednesday after the company announced a $10 billion mixed securities shelf offering Tuesday night – a bullish sign.
5. The “Wall of Worry is Back”: Seldom does the market crash when the crowd expects it. After a small pullback in February, the number of bulls (38.4%) in the Investor’s Intelligence Survey hit their lowest levels of the year.
6. International Strength has Arrived: We live in a world economy now. As such, it is a bullish sign to see strength in world markets. TheiShares MSCI EAFE ETF (EFA - Free Report) , which tracks a mix of mid to large-cap equities in developed markets, is trending higher and has retaken its 200-day moving average. China, the world’s largest economic influence outside the United States, is reopening after covid lockdowns. Meanwhile, Latin American countries such as Mexico and Argentina show surprisng strength. The iShares Mexico ETF (EWW) showed strength on Wednesday by gaining more than 2% in the session and is trying to break out to fresh highs. The Global MSCI Argentina ETF (ARGT) is also set up for a breakout from a bull flag formation, driven by stocks such as Mercadolibre (MELI).
Image Source: Zacks Investment Research
Takeaway
The weight of evidence suggests that the market is not heading for another 2000 rewind. Unfortunately, there are no certainties in the market. However, investors must play the odds. Regardless, if you keep an open mind, manage risk, and stay flexible; in the long run you will achieve strong investing results no matter what.
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2000 Rewind? 6 Reasons This Time is Different
The 3 Brutal Bear Rallies of 2000-2003
After the dot com bubble burst in early 2000, the stock market entered into a multi-year bear market. Not only was the bear market brutal from a duration and magnitude standpoint, it was not a smooth downward trend either. Because of the vicious countertrend “bear market” rallies, the market was difficult to short and even more difficult to find a bottom. During the 2000-2003 bear market, the Dow Jones mounted three significant rallies, that ultimately failed prior to the market bottoming. Below, the rallies 2000-2003 Dow rallies are illustrated on the SPDR Dow Jones ETF (DIA - Free Report) :
Image Source: Zacks Investment Research
Is 2023 Setting Up for a Repeat?
The war in Ukraine drags on, inflation is stubbornly high, and equities gave up gains in February to finish lower. For these reasons, even after the rally the U.S. equity market has had off the lows so far in 2023, many investors are still on guard. However, below, we will list 6 pieces of evidence as to why this time is different, including:
1. Fed Pivot Potential: While the Fed has remained hawkish, U.S. investment banks believe the Fed may pivot at some point. For example, Morgan Stanley (MS - Free Report) is in the camp that the fed may cut rates in December of 2023 (and slow rate hikes before that). The Fed controls the market’s liquidity and is the most vital factor to follow.
2. 200-day Moving Average Historical Evidence:The S&P 500 Index has exceeded its 200-day moving average for more than 25 days. Over the past 73 years, the index has never reached bear market territory (20% correction off highs), cleared the 200-day for this amount of time, and made fresh lows. SPDR S&P 500 ETF (SPY - Free Report) versus 200-day moving average:
Image Source: Zacks Investment Research
3. Entering a Seasonally Strong Period: Equity markets are entering the strongest quarter of the four-year presidential cycle.
4. Positive Earnings Reactions are Becoming Common: Despite the market pullback early on Wednesday, several stocks shot higher on massive volume after strong earnings reports, including Duolingo (DUOL - Free Report) , First Solar (FSLR - Free Report) , and Eventbrite (EB - Free Report) .
Image Source: Zacks Investment Research
Nvidia (NVDA - Free Report) , which gapped up on earnings last week, barely budged on Wednesday after the company announced a $10 billion mixed securities shelf offering Tuesday night – a bullish sign.
5. The “Wall of Worry is Back”: Seldom does the market crash when the crowd expects it. After a small pullback in February, the number of bulls (38.4%) in the Investor’s Intelligence Survey hit their lowest levels of the year.
6. International Strength has Arrived: We live in a world economy now. As such, it is a bullish sign to see strength in world markets. TheiShares MSCI EAFE ETF (EFA - Free Report) , which tracks a mix of mid to large-cap equities in developed markets, is trending higher and has retaken its 200-day moving average. China, the world’s largest economic influence outside the United States, is reopening after covid lockdowns. Meanwhile, Latin American countries such as Mexico and Argentina show surprisng strength. The iShares Mexico ETF (EWW) showed strength on Wednesday by gaining more than 2% in the session and is trying to break out to fresh highs. The Global MSCI Argentina ETF (ARGT) is also set up for a breakout from a bull flag formation, driven by stocks such as Mercadolibre (MELI).
Image Source: Zacks Investment Research
Takeaway
The weight of evidence suggests that the market is not heading for another 2000 rewind. Unfortunately, there are no certainties in the market. However, investors must play the odds. Regardless, if you keep an open mind, manage risk, and stay flexible; in the long run you will achieve strong investing results no matter what.