“You can’t fight the Fed” is a famous refrain repeated by most market participants throughout the years. Unfortunately, it is just not true. The truer statement is that “you can’t fight the market.”
Along these lines, I just read a bearish article and saw this comment, which also received a high number of “likes:”
“Occam’s razor dictates that this is simply the Fed manipulating the market upwards with their talk of rate cuts. You don’t want to fight the Fed, unless the banksters decide that the other direction is where they want to go next.”
Sadly, this perspective is parroted by many, but it means absolutely nothing. And, there is absolutely zero proof to this claim. In fact, the market had rallied 1100+ points before the Fed “manipulated the market upwards with their talk of rate cuts.” But, why be burdened by the facts when a story sounds so much better?
Unfortunately, too many attempts to correlate rates and the stock market. As I have been trying to explain, the TLT (a long-term bond ETF, which is an indirect way to also track interest rates) is now EXACTLY where it was (in the 99 regions) when the market was striking its 3500SPX low – in other words, when it was 1300 points (37%) lower. The difference is that we are now almost at 4800SPX with the TLT at the exact same point as it was when the SPX was at 3500.
So, while rates kept many investors bearish of the market for all of 2023, I am quite sure none of them recognize this fact.
Those who maintained the belief that you cannot fight the Fed lost their ability to foresee a 21% rally in TLT, as they maintained an expectation of continued rate hikes due to the Fed. Moreover, and worse yet, those who maintained the belief that you cannot fight the Fed lost their ability to foresee a 37% rally in the S&P500, as they maintained an expectation that continued rate hikes by the Fed would cause the market to break down further below 3500SPX.
This is the story of 2023 in a nutshell. And, this is even in light of what Alan Greenspan noted about the Fed’s ability to accurately forecast:
“We really can’t forecast all that well, and yet we pretend that we can, but we really can’t.”
Therefore, I would strongly urge you not to engage in inter-market analysis based on interest rates (and especially the Fed) as a guide to what the stock market will do in the coming years. Anyone who engaged in that type of analysis has misread rates (as most stayed very bearish on bonds) due to the Fed’s continued view of raising rates. And, even worse, they remained bearish of the stock market due to the same.
So, as I always insist, please make sure you are viewing each chart on its own. And, please do not conflate one with the other, or you are bound to repeat the wrongs of doing so, as was evident in 2023.
Nevertheless, now that the Fed has announced its intention to lower rates, those who followed the Fed to their detriment (and do not now heed my warnings) will likely continue to do so and assume that their lowering of rates will automatically mean that the stock market will continue to rally. And, yes, not only are most now expecting a majorly bullish 2024, but even many former bears are turning bullish for the same reason.
When does one begin to honestly look at the fact that their underlying market premise is simply wrong?
So, with these facts in hand, you have to consider if you still want to follow the Fed and interest rates when it comes to the stock market? Moreover, are you sure you want to follow the masses regarding 2024 expectations?
Yet, that will not stop investors, and writers alike, to continue to believe that the Fed runs the market. Therefore, I have no delusion that I will convince all those reading my article of the truth contained herein. But, if I am able to enlighten even a handful of investors, then it was clearly worth my time in writing this missive.
So, let’s discuss the market in a bit more detail.
Those that have followed me for a number of years know that we caught the low in 2020, and noted our expectation that we should rally north of 4000SPX off those lows. In fact, I was often taken to task for maintaining such an expectation due to the extreme fear at the time:
“Coming from someone who still thinks the bull market of January is alive enough to carry us to 4,000, that’s highly unmeaningful. . .. Here is the 2200 exactly that you said the S&P would bottom at before taking the trip back up to 4,000. . . What do you want to bet the ECONOMY is going to pull it down a lot further and that 4,000 is a lot further away than your charts ever said. . . . THIS bull market did not ever come close to taking us to 4,000, and it is not taking us anywhere ever again because it is DEAD. OFFICIALLY and in EVERY way. Every index is DEEPLY into a bear market now. The bull is dead, and so it can NEVER take us to 4000. What you predicted can NEVER come true now . . . . my own resolution is that this market has a lot further to fall because it is now following the economy, which it long divorced itself from; whereas Avi doesn’t believe the economy ever means anything to stocks and has told me so several times last year. . . So, you have that common sense view, or you can believe Avi’s chart magic will get you through all of that and is right about a big bounce off of 2200 all the way back up to 4,000.”
Now, in truth, my primary expectation for many years had been that the market would rally north of 5000SPX (with a potential blow-off top pushing as high as 6000) before a major long-term top would be struck. And, when I outlined my expectation for a pullback into 2022, I did not expect we would break down below 4000SPX before we would then rally to 5000+.
However, when we broke down below 4000SPX, it certainly shook my confidence in the potential to rally to 5000+. However, I still had a problem with my analysis, as I could not count a full and completed 5-wave structure into the high struck in January of 2022. And, I reiterated this throughout the last two years. The ideal structure still suggested that one more high to 5000+ should be seen before a long-term top is struck. Yet, due to the break-down below 4000, it forced me to turn more towards risk management in my approach.
Nevertheless, as we were striking the lows in the 3500SPX region, I was outlining my expectation for us to bottom in that region and rally back to the 4300-4505SPX region from there. And, I said I would re-evaluate our views on whether we can still go to new all-time highs based upon the market action at that time.
Well, the market followed through on our expectations for the rally to our target, and even slightly exceeded it when it topped at 4607SPX before we saw the larger degree pullback during the summer and fall of 2023.
But, the decline into the fall of 2023 also did not allow me to adopt an outright strong bullish view. The decline left the door open to be counted as a 5-wave decline but as a much less reliable leading diagonal structure. Yet, it still was enough to prevent me from turning into an outright bull. So, as the market was reaching support in the 4100SPX region, I outlined my expectation for a rally back to the 4350-447SPX region, and, again, I said I would re-evaluate the market structure at the time.
If the market would have provided us with a clear 5-wave decline after that rally completed, then I would had to have turned full on bearish and look for a decline into 2024 pointing us down to the 3000SPX region. Therefore, once we reached my 4350-4475SPX target, I went relatively neutral on the market until I saw how it was going to develop its structure below 4607SPX.
Of course, as we now know, the market rallied directly through 4607SPX, thereby invalidating the bearish potential I was forced to track. But, in doing so, it made it relatively clear that the market was again on track to attempt to take us to our original target of 5000+.
Now, there is no question that I missed some of the upside profit we have seen in the market over the last year due to my stance on placing risk management first and foremost in my priorities. Yet, even so, out of the rally from 3500 to 4800SPX, we still caught 81% of the points within that rally (which is being calculated based upon the lower end of our expectation targets outlined above – with you garnering 100% of the points if you were more aggressive and used our upper-end targets) while maintaining our focus on risk management. But, also take note that at no time did I suggest being full-on bearish until the market would provide us with another 5-wave decline. Rather, my choice was to turn neutral once we got to our 4350-4475SPX target. But, once the market moved through 4607SPX, it allowed me to move back to a fully bullish overall perspective, and an expectation that we can still rally to 5000+.
So, the question now is how should we approach the final leg of this rally to 5000?
Well, as we were approaching the high of 4778SPX during this past week, I outlined to members that the upper support for the SPX was at 4694SPX. And, as long as the market holds that support on all pullbacks, then it leaves the door open to head to the 5000SPX region in a more direct fashion than that which I had expected a few weeks ago. As we now know, the SPX then pulled back to 4697 (3 points over cited support) and clearly held that support so far.
So, for now, I am going to slightly adjust that support and say that as long as the market maintains over 4690SPX, then it leaves the door open for a more direct rally to a minimum of 4997SPX over the coming month or two. But, should we begin to exceed the 4834SPX region, then I will likely move that support up to the 4770SPX region. And, should we continue higher, I will continue to revise that support region higher until we complete this pattern to 5000+.
Of course, should the market break support before we arrive at a minimum of 4997SPX, then it opens the door to a more appropriate type of pullback that we normally see in these types of structures, which should point us down to the 4370-4530SPX region before the market embarks on its path to 5000+.
This is how I am viewing the next few weeks of market action.
So, no, I am not going to do what most do and tell you where I believe the market will end in 2024. I think that is just silly. But, I am going to give you parameters as to how I view the market action as we progress to what I think is going to be a major top.
Approaching a non-linear environment such as the stock market with a non-linear perspective is the only reasonable way to move forward. And, when the market does not provide any reasonable pullback after a 700-point rally, it really is the most prudent manner in which to approach the market.
Lastly, I have been providing a lot of public analysis regarding my view of how dangerous bank balance sheets are presenting. And, while the 2008 financial crisis was driven by one main factor, the next banking crisis actually has several factors that will potentially make it much worse than 2008.
So, while the market is now presenting us with a period of calm and relative safety, it would behoove many of you to seriously consider which banks are holding your hard-earned money before what I am seeing of the future becomes publicly evident as a current reality, and the proverbial doo-doo begins to hit the fan. By then, it may be too late to act.
We have outlined our view of the issues we see in the banking industry here for those of you who are interested. And, I strongly urge all of you to be “interested,” as you are the only ones who will be able to protect your hard-earned money.
Safer Banking Research Articles (https://www.saferbankingresearch.com/articles)
“By failing to prepare, you are preparing to fail.” – Ben Franklin
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