Navigating the Bull Market: Debunking Myths and Identifying Profitable Opportunities
1:02: J.C. Parats of All Star Charts begins by emphasizing that the stock market stopped declining in June 2022, marking the start of the current bull market. The best-performing sectors since last summer’s lows are Consumer Discretionary, Industrials, and Technology. He disagrees with Wall Street strategists’ negative outlook for the second half of the year and points out that the equally weighted NASDAQ 100 is making new highs, suggesting it’s
not just seven stocks driving the market.
3:04: J.C. explains the underperformance of the equally weighted S&P 500 compared to the cap-weighted version is due to sector rotation. Value-oriented sectors led at the start of the bull market, while technology and growth stocks underperformed. However, this year has seen a rotation back towards growth and technology, impacting the performance of different indices.
8:04: J.C. advises considering market indicators and sector rotation for profitable opportunities. Economists tend to react late to market changes, so it’s better to focus on market-leading indicators rather than lagging economic data. He also suggests being cautious about following Wall Street’s consensus views.
13:28: J.C. addresses some bearish arguments, particularly regarding small-cap stocks’ performance. He points out that small caps, like the Russell 2000, are making new five-month highs and have a long-term uptrend going back 20 years. The market’s recent strength proves that last summer’s lows are holding, suggesting that all is well.
17:25: J.C. dismisses several myths, including claims that there is a lack of market breadth and that the consumer is struggling. He shows that small caps have been leading large caps in performance, and the consumer discretionary sector has been the best performer since the market bottomed out. Industries like home builders, casinos, and airlines are making new 52-week highs, indicating that consumers are still spending.
22:55: J.C. discusses the catalyst for taking stocks higher, debunking the notion that it is driven by inflation or deflation. He presents the relationship between the strength of the U.S. dollar and the S&P 500, showing that a weaker dollar has historically been beneficial for stocks. The dollar’s recent decline coincides with the S&P 500’s new 52-week highs.
31:11: JC talks about the bond market and how large speculators (hedge funds) have their most aggressive short bets on bonds ever. He compares this situation to 2018 when a similar positioning led to a major rally in bonds. He emphasizes his belief that the dumbest money is at consensus, betting that interest rates will rise, but he thinks bonds will play catch-up, and the large speculators will be proven wrong.
34:43: JC mentions sector rotation and how small caps, industrials, and energy are set up for potential growth. He comments on the positioning in the banking sector and the lack of exposure to energy in the NASDAQ 100. He sees the current environment as a bull market and dismisses the idea of a crisis, suggesting that pessimism is prevalent among Perma bears.