October Volatility is Normal: Ryan Detrick on Market Pullbacks and Bull Market Strength

Understanding Recent Market Volatility

• 📈 The market experienced a streak of 33 trading days without a 1% move (up or down), the longest since before COVID-19, making recent 1% moves on October 13th and the following days unsurprising.
• 📅 October historically sees more 1% moves than any other month, suggesting that recent volatility is a normal seasonal occurrence, not necessarily a sign of a major downturn.

Signs of Weakening Market Internals

• ⚠️ While not signaling a major crisis, certain market internals are showing signs of weakness, including lagging performance in regional banks and housing.
• 📉 High-yield credit is also starting to show cracks, indicating potential underlying stress.
• 📊 Put-to-call ratios are showing high optimism, which, from a contrarian perspective, suggests a potential for a short-term pullback after a significant rally.

The Maturing Bull Market

• 🚀 After a 36% rally in 6 weeks, a period of consolidation or volatility is expected, akin to a "Charlie Brown shirt" moment.
• 💡 Historically, when the S&P 500 has gained over 35% in 6 months, the market has been higher one year later, with an average gain of 13%.
• ⏳ Bull markets that reach their third birthday, like the current one, have historically lasted much longer, with an average duration of 8 years.

Investment Strategy and Outlook

• 🏦 Despite concerns, the bull market is considered strong, supported by robust earnings, strong profit margins, and a dovish Federal Reserve.
• 📊 The strategy remains to stick with the winners, favoring industrials, cyclicals, and financials.
• 📈 Large-cap stocks are preferred over small-caps, with an expectation that the Fed may not cut rates as much as the market anticipates.
• 🌍 A diversified portfolio is recommended, with an overweight in equities and a specific focus on Developed International markets.

Earnings Growth Expectations

• 💰 Earnings growth for the current quarter is not as underestimated as in prior quarters, with positive pre-estimates on average, a trend not seen since late 2021.
• ✅ While the bar may be higher, earnings are still expected to come in better than anticipated, with more optimism surrounding this earnings season compared to recent ones.