Bears Lose in 2017

For the stock market bears, the second week of November appeared to be a multiple course meal. Both Japanese and European stocks significantly pulled back. Growth numbers in China was dismal. High yield corporate debt sagged and yields went up from the historically low levels. Smaller stocks also were disjointed. Bank shares struggled and the indexes were held up by defensive sectors. New lows suddenly appeared on the landscape.

Bears out

The bearish signs were all there: concerted selling led to Dow Jones Industrial Average or DJIA to drop about 150  points on two consecutive mornings. The Standard & Poor 500 Volatility Index shot up to three month highs. Cash flowed away from junk bond ETFs. Then everything stopped all of a sudden. The bulls came back, and the bears were thrown out.

There were excellent reasons for the bounce. The market acted differently in 2017. The year is coming to a close and there was no three percent pullback. This phenomenon occurred for the first time since 1995. Economic data was strong in the housing and industrial fronts. There was a rebound in the overseas markets. Big technology companies saw their shares rise. The bears could not even hold on to their traditional pastures of retail and old media. A number of store chains published positive results and the media industry is enjoying a merger buzz.

Bulls all the way

The closing days of November will see seasonal tendencies begin in favor of the stocks. Every previous study conducted in similar stock market situations like as it is seen now is in favor of bulls. It is observed that when a record high has been made by the Standard & Poor 500 or made minimum 15 percent gains all through October, the subsequent months have a tendency to rise more than normal. Stock market analysts agree that bears are not able to take control of the market now. The market until now has refused to bow down. Technology leads the market. Semiconductor companies especially are heading the pack. It seems that this theory resonates with the investing public. Technology ETFs have witnessed two heavy inflow weeks during November, until now. One factor which has stymied the decline in the market is that the market does not go higher. Stock correlations are now decades' lows and many losers are partly offsetting winners. The upside is the conservative ones, with the biggest one-day gain coming to only 1.38 percent.

Leave a Comment