Cyclical Bear Market
The bull and bear labels can be dangerous to stock market operators, so much so that famed speculator Jesse Livermore is said to have abandoned them in favor of softer terminology: “Lines of least resistance.” We aren’t about to ditch the old labels, or even our collection of bull and bear bookends.
Small Caps lagged during the bounce off the March lows before a late-April spurt briefly pulled them ahead of the S&P 500. Still, considering that Russell 2000 losses were so much steeper than the S&P 500’s (-43% versus -33%), we would have expected something better.
It’s been one of the worst years on record for diversification, with our hypothetical All Asset No Authority (AANA) portfolio down 7.2% YTD through yesterday. That’s the second-worst year for AANA since 1972, and there’s probably not enough time left for performance to undercut 2008 (-24.9%) for the bottom spot.
The most compelling evidence that a bear market is underway may not be what’s been punished (Transports, Small Caps), but what hasn’t. We believe the final bull market highs of any composite or sector index were recorded on December 29th.