Commentary

AGFI Signals New Bull Market

The first building block signaling a new bull market fell into place. The Aggressive Growth Fund Index (AFGI) closed the day 22% off its low registered on December 21st.

Our February commentary (as published in Barron’s) focused on seven reasons why a new bull market may be unfolding. On Friday, the first building block signaling a new bull market fell into place. The Golden Eagle Aggressive Growth Fund Index (AFGI) closed the day 22% off its low registered on December 21st. There was follow thru on Monday with another 1.6% gain in the face of a flat market.

The AGFI proved to be a leading indicator for the past two bull markets. Prior to the S&P 500 Index upturn during the bear market of 2007-2009, the AGFI bounced off its cyclical low five months before the S&P 500 Index touched bottom in March, 2009.

Bear market cycles have lasted 13 months on average since WWII according to our research. The shortest bear market occurred in 2020 which lasted just five weeks. Nonetheless, the AGFI turned up one week in advance of the S&P 500 upturn. Based on Friday’s close, the S&P 500 Index has risen 16% off its October low while the NASDAQ Composite has advanced 19% off its December closing low.

Two other key factors support the case for a new bull market.

1. The 50-day daily moving average of the S&P 500 Index crossed over the 200-day moving average in February which sent a bullish signal. It has remained above the 200-day average ever since.

2. There has never been an instance in 13 bear markets since WWII in which 7 months have elapsed between the market bottom and the previous low. The S&P Index hit bottom on October 12th and has now gone 7 months without sinking to a new low. Up 16% as of this writing, it seems unlikely to decline by this much anytime soon.

The economy, although softening now, is primed for a major overall profits improvement in 2024. The net profit margin for S&P 500 companies peaked at a record 13% in 2021. After declining for six straight quarters, the net margin increased in the first quarter with a rebound to 11.5%.

Businesses have been planning for a possible recession for more than a year now and have taken proactive steps to reduce head counts and other expenses. Thus, it is possible that net corporate profitability can rise to a new record level in the next economic upturn.

Most stock market forecasts tend to focus on the here and now and rarely take the market discounting mechanism into account. Historically, new bull markets have risen from the ashes when news headlines read at their worst.

The stock market happens to be one of 10 leading indicators published by the Conference Board. As such, the stock market has historically led upturns in the economy by 3 to 11 months.

Economic growth is expected to strengthen in 2024, so greater revenues growth combined with higher margins should lead to a double-digit gain in corporate profits next year. We think that the stock market is now looking ahead to this eventuality.

In past recoveries, it has taken 22 research months on average for the stock market to recover and push on to setting a new all-time high. Given the evidence at hand, it looks probable according to the Golden Eagle Eye that the S&P 500 Index will continue to climb the wall of worry this year and move into record territory once again sometime in 2024.

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AGFI Signals New Bull Market

The first building block signaling a new bull market fell into place. The Aggressive Growth Fund Index (AFGI) closed the day 22% off its low registered on December 21st.

By
Robert Zuccaro, CFA

Our February commentary (as published in Barron’s) focused on seven reasons why a new bull market may be unfolding. On Friday, the first building block signaling a new bull market fell into place. The Golden Eagle Aggressive Growth Fund Index (AFGI) closed the day 22% off its low registered on December 21st. There was follow thru on Monday with another 1.6% gain in the face of a flat market.

The AGFI proved to be a leading indicator for the past two bull markets. Prior to the S&P 500 Index upturn during the bear market of 2007-2009, the AGFI bounced off its cyclical low five months before the S&P 500 Index touched bottom in March, 2009.

Bear market cycles have lasted 13 months on average since WWII according to our research. The shortest bear market occurred in 2020 which lasted just five weeks. Nonetheless, the AGFI turned up one week in advance of the S&P 500 upturn. Based on Friday’s close, the S&P 500 Index has risen 16% off its October low while the NASDAQ Composite has advanced 19% off its December closing low.

Two other key factors support the case for a new bull market.

1. The 50-day daily moving average of the S&P 500 Index crossed over the 200-day moving average in February which sent a bullish signal. It has remained above the 200-day average ever since.

2. There has never been an instance in 13 bear markets since WWII in which 7 months have elapsed between the market bottom and the previous low. The S&P Index hit bottom on October 12th and has now gone 7 months without sinking to a new low. Up 16% as of this writing, it seems unlikely to decline by this much anytime soon.

The economy, although softening now, is primed for a major overall profits improvement in 2024. The net profit margin for S&P 500 companies peaked at a record 13% in 2021. After declining for six straight quarters, the net margin increased in the first quarter with a rebound to 11.5%.

Businesses have been planning for a possible recession for more than a year now and have taken proactive steps to reduce head counts and other expenses. Thus, it is possible that net corporate profitability can rise to a new record level in the next economic upturn.

Most stock market forecasts tend to focus on the here and now and rarely take the market discounting mechanism into account. Historically, new bull markets have risen from the ashes when news headlines read at their worst.

The stock market happens to be one of 10 leading indicators published by the Conference Board. As such, the stock market has historically led upturns in the economy by 3 to 11 months.

Economic growth is expected to strengthen in 2024, so greater revenues growth combined with higher margins should lead to a double-digit gain in corporate profits next year. We think that the stock market is now looking ahead to this eventuality.

In past recoveries, it has taken 22 research months on average for the stock market to recover and push on to setting a new all-time high. Given the evidence at hand, it looks probable according to the Golden Eagle Eye that the S&P 500 Index will continue to climb the wall of worry this year and move into record territory once again sometime in 2024.

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