On The Seven Year Anniversary Of "The Most Hated Bull Market Ever" – How We Got Here
By Tyler Durden
As most financial media will remind you, today is the 7 year anniversary of the market’s lows hit on March 9, 2009, a day when the Wall Street Journal wondered “How low can stocks go”, which took less than a week after Obama
Now, as Bloomberg writes, “investors are awash in angst, showing little faith the run can continue. They worry about contracting corporate earnings, slowing Chinese growth and uncertainty over interest rates. And they’re walking the talk by pulling cash from stocks at almost the fastest rate on record. It’s not unwarranted – the S&P 500 has gained just 0.5 percent in the last 18 months.”
What Bloomberg is confused by is that despite this unprecedented rally, after a brief period of inflows in 2013 and 2014, investors have been pulling money out of stocks at a record pace, leading not only Bloomberg but many others to dub the move in the market as the “most-hated rally ever.” What Bloomberg fails to note is that as everyone else has been selling, corporations have unleashed the biggest debt-funded stock buyback spree in history, providing the natural offset to wholesale selling by virtually everyone else, and allowing the market to barely dip over the past year.
To be sure, what happens next is unknown; yesterday Jeff Gundlach said that at this point the most recent bear market rally, which has taken the S&P 10% from its recent lows, is over and the risk/return profile is abysmal, offering 10 points of downside for every 1 points of upside, and concluding his presentation by saying “I think we are near the end of a bear market rally with a 10:1 risk/reward ratio.”
Bloomberg promptly took the other side, and argued that just because the rally is hated, and the “wall of worry” is growing, the next big move is likely to the upside. To wit:
[W]hen people withdraw money, stocks inversely tend to rise later, according to data since 1984. In the 12 instances when funds experienced monthly outflows that were at least 2 standard deviations from the historic mean, the S&P 500 rose an average 7.1 percent six months later, compared with a normal return of 3.9 percent, data compiled by Bloomberg and Investment Company Institute show.
[Once] things start to turn around, bears will be forced to buy. From Feb. 11 through Monday, a Goldman Sachs Group Inc. index of the most-shorted companies outperformed the S&P 500 by almost 16 percentage points, the most in data going back to 2008.
That, too, is nothing new. Back in 2013 we said that in a manipulated market, the only way to generate alpha is to do the opposite of what everyone else is doing in “Presenting The Best Trading Strategy Over The Past Year: Why Buying The Most Hated Names Continues To Generate “Alpha” …read more
Source: On The Seven Year Anniversary Of "The Most Hated Bull Market Ever" – How We Got Here
