[NOTE: This material does not represent investment advice in any way. It is for educational purposes only. Investing is personal. See your investment guru before making decisions.]

ABOUT 40 YEARS AGO, while spending time in France after college, I hitchhiked south to Madrid to visit my Aunt and cousins.  While I did experience the Prado and the Guernica there, I also attended a bullfight at the Plaza del Toros.  I bring this up because a bullfight, while arguably brutal,  is a pageant and there is a process about it. A matador does not enter the ring prepared to face a fresh fighting bull. The bull is systematically weakened by picadors on horseback who spear the animal’s neck and shoulder muscles to reduce its ability to turn (so the matador can further weaken and sidestep it later).  When the matador enters the ring in the last “act” of the pageant, his goal is to tire then kill the bull instantly ( humanely?) with a short sword.

But this post is about the US Stock Market.

Right now, the strength of the US economy has kept the market from imploding despite the withdrawal of monetary stimulus (the collective Fed actions to reduce the money supply) to “unwind” earlier actions and reduce inflation. The economy is also stubbornly strong despite the reduction in fiscal stimulus (government spending) since the end of the Covid-19 pandemic. The stock market rebounded from recent lows despite the recent threat of national default triggered by the anarchists, nihilists and political terrorists who currently masquerade as lawmakers (see post https://www.moviesmarketsandmore.com/send-in-the-anarchists-movie-review-joker/).

In the past, in order to explain stock market buoyancy amid various risks, pundits would characterize  the action (that was probably due to ultra-low interest rates, trillion-dollar blasts of QE, and waves of stock buybacks) as merely “the market climbing a wall of worry.”

The recent cartoon below by Matt Davies of NewsDay parodies of a list of existential crises that are certainly sources of real worry for markets and, by definition, the future of humanity (it’s okay, corporations are immortal and AI will still be around):

The market itself is grinding higher, and volatility is surprisingly low despite the aforementioned forces and threats. The QQQ, a mostly tech index ETF shown below, has been boosted by “AI” excitement and possibly short-sellers buying back positions (i.e. short squeeze). It’s up 25% from the lows.

And the Volatility Index (“VIX”), a measure of “fear” or pessimism for the broader market, is at a multi-year low. Complacency is the prevailing mood.

To return to the point of this post, the “Bull” is a multi-decade super-bubble and bull market–interrupted by a few short-lived crashes (picadors’ spears to weaken the bull)–that is struggling once again to recover and move higher.  At best, this market is overpriced and a poor risk/return prospect. At worst, nagging inflation, fewer buybacks, less Fed “rescue” stimulus, overdue bank, energy, and tech regulations, and potential crises on numerous fronts (see cartoon for a list of most of them) will prompt trumpets to blare as the matador enters the arena (the New York Stock Exchange) for the final act. There will be increasingly feeble bounces (charges) that will miss the mark (“Ole!”) until the coup de grace is delivered (new lows on the S&P500). The Bull will be remembered as the greatest expansion in US financial history–a champion or a super-bubble; take your pick.

But the excesses of the past: runaway monetary policy, deregulation everywhere, tax cuts for corporations and billionaires, and corruption in general, have to exact their pound of flesh.

Bear markets (when they happen) are supposed to be healthy because they thin out the weakest elements in an economy. But if you can’t handle the sight of blood (portfolio losses), don’t go to a bullfight (limit exposure to stocks) and perhaps downsize and cut overhead.

WRH