The Bull Market Is Still On, But…

ANG Traders
4 min readMay 21, 2024

…under the surface there is one concerning development.

In this piece, we show that the secular bull market that started in 2009 remains in place, but the pace of the rally is threatened by the lower fiscal net-transfer rate that has developed during the last three months.

The Bullish Primary-Trend

The super-long-term (100-year) picture, shows that there is a step-like pattern of major rallies lasting on average 20-years, punctuated by 12-year trading-ranges. The market is only half way through the current major up-leg, which means the bull market is not over at this scale.

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Looking closer at the current up-leg, we see a fractal step-like pattern of trading-ranges punctuated by rallies which last an average of 2.5-years. We are currently less than one-year into the latest breakout (green-arrow) which means the bull market remains in place.

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Technically, the primary trend is still the same bull market that started in 2009 (chart below). The SPX remains above the mid-line of the the Raff regression, the 8-moth MA is above the 12-month MA, and the momentum indicators are healthy.

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Much is written of the 10y-2y rate inversion, but none of it points out that we don’t see recessions until 6–18 months after the second inversion. We remain in the first inversion which means a recession is unlikely in the next 12-months and the bull market remains in place.

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Higher rates, contrary to what the ‘talking-faces’ of business TV have been saying for 2-years, correlate positively with the SPX. In the chart below, the black-box highlights that the market is replicating the patterns of the 1995–2000 SPX rally. As long as the interest rate stays below 6%, the conditions will remain bullish.

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So What’s The Problem?

The problem is in the fiscal-flows coming from the Federal Government spending. The net-transfers are slowing down, even though the nominal-spending remains higher than last year.

At this point in fiscal-2023, +$982B had been net-transferred from the Treasury into private bank accounts. So far in fiscal-2024, only +$803B (-$18%) has been delivered: annualized, it is only $1,400B/year compared to $1,700B/year in 2023. This is concerning, because the SPX grows when the deficit gets bigger (Note: the deficit is a negative number, therefore, a lower level on the chart below).

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The large tax-take in the month of April net-drained -$262B from the economy. So far, in the month of May, only +$196B has been added back which means there is still $66B missing from private bank accounts, but the SPX has, none-the-less, rallied to new highs. The SPX has moved higher at a pace that would be expected from a net-transfer rate of $2T-3T, but the actual net-transfer rate is between $1T-$2T. The SPX is vulnerable to some weakness.

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The fiscal-flows “tow” the economy and the stock market like a tractor, but the “tow-cable” is elastic. This means that when the tractor slows down, the market can keep moving forward faster than is warranted…for a time. Eventually, reality will slow it down.

New highs in the market will not be sustained. Either, net-spending increases (the tractor speeds up), or the SPX will weaken…especially around the corporate tax-take in June.

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ANG Traders

Forty years of private equity trading, and still learning.