Stocks had a terrible day on Thursday.
And over the last couple weeks, stocks have become increasingly volatile, and many are starting to ask if this is the sell-off we’ve seemingly been waiting years for.
The Fed is set to end its QE program at the end of this month, and growth in Europe has been flagging as bond yields have tumbled around the world.
But as the market continued to grind higher through the summer, it seemed that almost every bear on Wall Street was forced to abandon their call, while bulls got even more enthusiastic.
And many would argue that there is nothing more negative for the market than when those that consistently warn stocks could fall finally admit defeat.
The bears turning bullish around late August and into September, and since then the S&P 500 has lost about 3.6%.
Here’s a quick collection of headlines that, in hindsight, maybe we should have paid more attention to.
Back in August, Deutsche Bank economist Torsten Slok circulated an email that said until we get an economic recession, stocks are going higher.
Slok added that he doesn’t expect the Fed’s first rate hikes will upset the current economic expansion, and that stocks will steadily rise over the coming years.
Citi’s Tom Fitzpatrick and the technical analysis team at the firm wrote that if August’s rally outpaced the July decline stocks saw, the S&P 500 could be poised to rise to “at least” 2,150-2,250 by the end of the year.
That happened, so this call still remains to be seen.
Morgan Stanley’s Adam Parker wrote that our recent experience with boom and busts cycles aren’t like most of those seen through history, and that bull markets don’t end just because they have gone on for a long time.
“Our best guess is that an S&P 500 peak of near 3,000 is possible should the US expansion prove to have five or more years left,” Parker wrote.
RBC Capital Markets’ Jonathan Golub wrote that when you look at super cycles of the Dow Jones Industrial Average, periods of volatile sideways moves often preceded moves higher.
When Golub wrote this note, markets hadn’t done much year-to-date, and as of Thursday’s close, the Dow was up just 0.5% for the year.
Deutsche Bank’s David Bianco, who was the most bearish strategist on Wall Street for 2014 with an S&P 500 year-end price target of 1,850, finally rolled over in September 8, when the S&P 500 was a it over 2,000, and moved his price target up to 2,050.
“Despite entering the latter years of a typical expansion and high margins vs. history, we now think the trailing S&P PE should average 17 vs. 16 until elevated recession risk returns,” Bianco wrote.
Nomura’s Bob Janjuah, who has long been one of Wall Street’s uber-bears, wrote that stocks were likely to go higher until the VIX closed below 10 for two consecutive weeks. The VIX closed near 19 on Thursday.
Janjuah’s calls for more currency weakness, particularly from the Japanese yen and euro against the dollar, have played out so far.
Wells Fargo’s Gina Martin Adams, the biggest bear of 2013 who had a year-end price target for the S&P 500 of 1,850, dropped that target and introduced a “12-month forward price target of 2,100.”
Adams wrote that the positive outlook for stocks came from a, “fundamental optimism toward equities from an improving economic and earnings backdrop,” though she remained concerned about lofty stock valuations.
David Rosenberg, chief economist and strategist at Gluskin Sheff, told Reuters that the stock market is “in some kind of a corrective phase…but it’s not the end of the world.”
“I think we’re still in a fundamental bull market,” Rosenberg told Reuters.
Rosenberg was a long-time leading bear on Wall Street, but turned bullish about two years ago.
Tom Lee, former chief US equity strategist at JP Morgan and now CEO of Fundstrat Global Advisors, wrote in his debut not to clients at his new firm that investors should, “Stay bullish into year-end.”
“We see multi-year gains ahead for US equities, driven by the favourable combination of: (i) pent-up demand; (ii) repaired household, corporate, and bank balance sheets; (iii) attractive relative value for stocks and (iv) low conviction by investors,” Lee wrote.
And so while its only been a couple rocky days, and the S&P 500 is still up 4.3%, the elevated volatility we’ve seen recently gets investors and market watchers wondering if the next real market leg is higher or lower from here.
So we can read this collection of recent headlines, it seems, two ways: either these are reminders that the bull market is likely to keep going despite volatility, or we’ve missed a major sentiment shift right at a new market top.