The Bond Market Takes Center Stage

• Barron’s recent fall 2019 Big Money Poll reported that only 27% of money managers are bullish on the stock market for the next 12 months, down from 46% in the spring survey and 56% a year ago.  The latest reading is the lowest percentage of bulls in over 20 years.
  

  A whopping 42% of managers call stocks overvalued, while only 5% consider the U.S. stock market undervalued.  This would account for the low percentage of bulls.  We are not in either camp and think valuations remain a bit rich but not overly so.  Slightly above average since 1990.

  About a third of money managers see a U.S. recession arriving in 2020, but nearly two-thirds don’t expect the economy to contract until 2021 or later.  We are definitely in the latter group.  In fact, it appears to us that global growth may be bottoming.  The recent uptick in interest rates confirms our view.
   

• The blended earnings decline for the S&P 500 in the third quarter is 3.7% so far.  About 70% of companies beat earnings expectations and 56% beat revenue expectations.  For Q4 2019 more companies issued negative EPS guidance than positive guidance.  Bottom line:  earnings have been better in Q3 than forecast.  And 2020 earnings growth is projected to be a robust 9.9% (source:  FactSet).

BULL MARKET TOP CHECKLIST

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Source:  Stifel, Strategas Research Partners

Both the magnitude and duration of this bull market have been impressive as shown above.  More and more investors are forecasting an end to this bull, but bull markets don’t die of old age.  Rather, a number of conditions are usually present which signal the end of the bull.  Here are ten of these conditions and our thoughts:

As the tally shows, most bull market top conditions are not present.  Stocks broke out of their 21-month trading range last week and continue to surprise the skeptics.  This bull market has the potential to be the strongest on record-it’s already the longest.