CAMS View from the Corner
February 3, 2025
In our previous edition we briefly chronicled the general behavior of the stock market since the Covid era cliff-dive and noted how the stock market quickly regained its footing moving through that timeframe.
As we moved into and through 2022 and its corresponding significant downturn the stock market again regained its footing and we have been on that trend ride since.
This is where we can accurately offer the stock market has been on a solid uptrend, post-2022, if speaking very generally.
As the old adage goes the devil is in the details and when it comes to our post-2022 stock market this certainly holds true as the details offer this stock market, structurally speaking, has not been solid and strong which is atypical coming out of notable downturns.
When viewed through an historical lens this is strange.
If 2022 represented a significant downturn which then set the stage for a refresh, or say a reset such as traditional bear markets (down markets) do then coming out of the 2022 downturn offers a market that is not acting as fresh new strong bull markets should and do act as they begin their new eras.
We have occasionally chronicled this unfolding market storyline in past editions while simultaneously offering an on-going observation of looking for it to change to something more recognizable to that of historical new bull markets.
As we offer additional perspectives on this observation, let’s side note this and say for sake of discussion that someone would offer this is not a new bull market because the old bull market never ended.
This would mean that 2022 was not a reset (bear market) but rather just a little correction (keep in mind though well known indices were down nearly 40% in some cases) along the path of an on-going bull market.
If this is the case then our current market strangeness is even more concerning. Why?
This would offer we have a very aged bull market not necessarily in its duration but rather, yet again, in its behavior. As bull markets age they tend to die on the proverbial vine similar to summer season turning to fall which offers less and less vibrancy as you look out onto the landscape.
Similarly, aging bull markets offer less and less vibrancy in their broad landscape as less and less stocks participate in the upside process. That is, more and more “leaves” fall by the wayside.
So if this is just one long bull market as our side note offers then we have an aging bull market issue via its behavior. Conversely, If this is a fresh new post-2022 bull market then we have a historically strange bull market on our hands.
In the first case it is historically recognizable and through this understandable. In the second case, our base case, we have a bull market that is operating on less than all cylinders which suggests we need to continue to keep a close eye on this strange behavior. Is this just one big bull trap?
That is unanswerable at this juncture but is worth keeping an open mind to so as not to be snared in its trappings.
For our part we remain in eyes-wide-open mode (reflecting our open minded psychological state when viewing this storyline) as this backdrop is getting long in the tooth. This far down the timeline, post-2022, we should certainly be seeing a more normal behaving bull stock market and the fact that we are not continues to increase our suspicious observations.
Two Additional Checkpoints
In our previous edition we viewed the behavior of the Equal Weight S&P 500 index compared to the far more recognized and advertised Weighted S&P 500 index. The point to that observation is the performance relationship of the two has been acting very strange relative to its historical behavior entering into new bull markets.
To round out today’s edition we share two broad based vehicles that target the size of companies known by their Market Capitalizations. The often referenced size is more recognizable by their quick reference names such as “Large Caps” or “Small Caps.” Below we show Small Caps and Micro Caps.
The above depicts the behavior of Small Caps via a well recognized Russell 2000 Small Cap ETF. This dates back to 2019 for some perspective.
Our initial red up arrow highlights the behavior of Small Caps coming out of the Covid cliff-dive. As depicted these are clearly not immune to participating in new upward charging bull markets.
Note how they easily came off their bottom level and also easily surpassed our horizontal black line which is denoting their previous high water mark. They went on to rapid and large gains in that new upturn up and into 2021.
Conversely, note the behavior of them in this bull market experience post-2022. Our green line begins at their general high level area of late 2021 and walks on through to current day.
Their price behavior has waffled around and then found a way to reluctantly move higher if we attempt to narrate its stumbling process at moving upward. All told, through the process and time we see this is essentially in the area it was at with its prior peak circa late 2021.
Referencing our red arrow time period we can see a notable difference in behavior and strength when a strong and broad new bull move had begun. The Small Caps clearly are not immune to notable upside participation which is blatantly missing in this post-2022 bull market.
(As an add-on note - back in latter 2021 we offered editions asking why are these small and micro caps topping out and attempting to turn southbound as we raised concerns of its overall forward stock market message. This took place as large weighted stock indices continued higher. The Small’s and Micro’s messaging warned us and then walked us into the 2022 bear move. Simply, their behavior is worth paying attention to.)
Above is the same timeframe as our first chart albeit this depicts Micro Cap companies via a Micro Cap ETF. The story plays out similarly for the Micro’s as it did above for Small Caps.
We see the same Covid cliff-dive with a similar strong rebound which then turned into a trend of higher highs. Our green line also notes the high water area for the bulk of 2021 pointing over to current day. In this case we see the Micro Caps have been unable to even reach previous high levels.
The above storylines add to our on-going observation and chronicling of this overall atypical bull market, post-2022.
We need to see a broadening out in participation which would speak to an improving structural stock market landscape.
As it stands if this narrowness in participation continues it will add to a growing concern that in light of the stock market not operating on all cylinders it is pointing to a downstream stock market issue.
For now we continue to monitor the market structure details for evidence of downstream direction while continuing to note this on-going odd stock market behavior.
I wish you well…
Ken Reinhart
Director, Market Research & Portfolio Analysis
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