Today turned into a real gut check for the bulls. Is the post-Fed rally done? And in that scenario, were the last few weeks only a brief bounce before bear market conditions take over?
Like everything crucial on Wall Street, the answers are all in the eye of the beholder. If you want to sell stocks here and retreat to the sidelines, it’s time to go . . . it’s that simple.
But if you want to stay in the market because you’re convinced the future will be better than the past and stock prices will reflect that, the real question revolves around timing.
People who are obsessed with instant gratification won’t be happy unless the market keeps climbing back to record levels. They’re probably already unhappy. It’s been a rough couple of months without a lot of constructive catalysts or even relief.
And it depends on the side of the market you’re on. The S&P 500 still has technical support and a clear statistical path back to record territory.
There’s a little resistance around 2-3% up from here, but it’s less about statistical gravity than a post-Fed high water mark showing where the bulls ran out of steam two days ago. At worst, that’s a historical ceiling . . . and we know that’s rarely a gauge of future results as long as statistics point in our direction.
Ceilings crack all the time. Some are stronger than others. The NASDAQ is having a much harder time breaking out. It’s struggling against fairly strong resistance.
Blame technology. While a lot of the Silicon Valley giants that dominate the NASDAQ have gotten back to work, AMZN hasn’t been so lucky.
And FB is dead weight at this point. Everything else has to work harder to overcome the drag . . . and as big as some of these stocks are now, it takes a lot of enthusiasm to keep them moving at all.
Right now, I’d tentatively bet on the S&P 500 continuing its rally while the NASDAQ drifts for the next few months at least. But I’m not betting against the NASDAQ until we can evaluate just how strong the ceiling is there.
From this afternoon’s lurch to the downside, I’m starting to suspect it’s a fairly strong ceiling. In that scenario, that end of Wall Street is going to struggle to climb even 2% . . . and that close to the near-term top, you’re not going to make a lot of money in the meantime holding QQQ or other NASDAQ index funds.
And there’s not a lot of urgency in buying this dip. We have leisure to wait here. When the bulls are back in control, we’ll know.
Likewise, if the S&P 500 can’t climb another 2-3%, it’s basically dead money. Since the market as a whole usually takes a whole year to move 10-11%, there isn’t a lot of urgency either way.
If you’re looking for a long-term win, you can reasonably buy the market as a whole any time and simply hold on until you’re happy. That can take years or decades depending on your goals.
We’ll talk more about what it takes to achieve various concrete goals in this space. For now, however, if you’re looking for current income, betting on the market as a whole to soar year after year is not the way to do it reliably.
Current income needs to be consistent. That means dividends that can get you through life while we’re waiting for the future to arrive.
It’s no coincidence that most of the stocks that are climbing this year pay dividends. They’re reliable, defensive, steady performers.
Wall Street isn’t looking for anything spectacular in the next few months. At best the professionals just want a place to park their funds and preserve their purchasing power.
It’s not like there isn’t always heat somewhere in the market. A full 1 in 10 members of the S&P 500 hit records today. But they’re insurance companies, drug makers, utilities.
These are not what I’d usually call dynamic industries. They rarely move fast in either direction. Right now, they have no barriers in their way.
This is their moment. They may not climb high in the immediate future, but if you’re looking for a break from volatility, you’re not alone here.