Historical Analog Update
Despite the markets (in our opinion) being oversold enough to launch a rally soon, we really have to break from past cycles- because the next 12 months or so do not look too promising based on the historical data:
Market Cycles- We lined up the panic bottoms from the last three secular bear market cycles- these being achieved after a multi-year bear market in stocks had already been in place (the bottom is formed at the midpoint of the cycle). From there, the markets will launch a post-crisis recovery period with strong gains in the first 2+ years. After that, prices trail off and undergo significant retracements based on the prior cyclical bull (either 38.2% or 50%)- and due to macro overhang (not necessarily earnings / valuations).
That’s really the window we appear to be in today- such that despite any oversold / trading rallies ahead, we expect the S&P to move lower over the next 16 months unless something is done to break this cycle (our sense is that it would have to be more significant than a QEIII this time around…).
(Research courtesy of Dan Wantrobski, Director, Technical Research, Janney Montgomery Scott, LLC)
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