This article is adapted from an exclusive interview with Robert Zuccaro, CIO of Golden Eagle Strategies, in August 2022.
Question: Right now, there are a lot of people scared saying that we’re on the brink of a recession, but you say that we entered a new bull market at the end of 2021. When exactly do you feel a new bull market began?
Answer: There are a lot of skeptics stating that we’re entrenched in a bear market rally, but we have a lot of confirmation that the new bull market started on June 16th. We had a hint on the market bottoming on March 16, however there was no confirmation because we had certain aggressive growth funds in new bull market territory that we’re up 20% or more from their lows. The index did not show that reading but we feel more than likely that the new bull market started on June 16th.
Question: What method do you use to determine when a new bull market begins?
Answer: There are certain leading indicators of the market, and they tend to work like clockwork. First off, Indexes. The NASDAQ and Russell 2000 index, along with Golden Eagle’s Aggressive Growth Index tend to lead the stock market. This happened in the bear market of 2000-2002 when these indexes peaked before the S&P and at the trough 30 months later, they turned up before the S&P.
In 2008 the aggressive growth index, as well as the NASDAQ and the Russell 2000 all turned before the peak in the market, however on the recovery, the aggressive growth index started its recovery five months before the market started its recovery in March of 2009.
The leading indicator is that the aggressive growth index, has recovered 30% from its bottom and that as of today the NASDAQ Composite is now up 22% and if we look at the Russell 1000 growth, that is up 21%.
We do a lot of charting of new highs versus new lows. And we look at this every trading day when the market was in an upward trend during 2020 and 2021, new highs exceeded new lows on a daily basis 75-80% of the time. We now have 13 consecutive days where the new highs have exceeded the new lows, which is the best run for this indicator in 2022.
Additionally, two weeks ago, Bank of America reported in a survey of the 300 largest funds in the country, that they had their highest cash positions at any time since 2008. We think we have a lot of building blocks in place, and we think we really have a particularly strong case, this being a new bull market.
Question: Looking out over the next 6 months, where do you see things going?
Answer: We think the stock market will be in record territory before 2023 is out. There are a lot of viewpoints out there that saying the economy is in recession, or if it’s not it will go into recession. To say the economy is in recession suggest that a lot of people haven’t done their homework. Yes, we’ve had two quarters of negative GDP, but when that’s happened in the past, where we’ve had two negative quarters, six months later, the S&P has been 12% higher and one year later the S&P has been 26% higher.
If you go to the recession of 2008 corporate profits dropped 40% that year. In the recession of 2020. Corporate profits dropped 35%. In this so-called recession, Corporate profits are up 7% in the second quarter. Additionally last year S&P earnings last year were $206 a share. This year they are estimated to finish up $225 a share and go on with a further gain of 10% in 2023. Recessions are not made from those profit progressions.
Question: What do you feel caused this last market meltdown?
Answer: I think there is a misimpression on the market meltdown in the first half of this year. The NASDAQ dropped 30% The S&P dropped 20%. In the area where we buy or trade in managing aggressive growth stocks, we dropped an unprecedented 47% in six months. Looking back all of the way to 1958 that is something that has never happened before in any six month period. Many say that the dramatic drawdown of all areas of the stock market is mostly attributed to the Fed raising interest rates and fears of inflation, but that’s not what happened in our view. Our view is most of the decline can be traced to regression to the mean theory.
Over the past five years, aggressive growth funds have produced an annualized return well 100% above trend, showing a 31.3% annualized return. Likewise, the S&P 500 has returned a very high annualized return of 18.6% over five years, versus the norm of 10%. We think most of the decline is a regression to the mean. The regression has been so severe that if you remove the year of 2017, when aggressive growth stocks were up 44% and the S&P was up 22% and insert a 47% decline for the aggressive growth index and a 20% decline for the S&P, we are now looking at trailing a five year annualized returns of 8.0% for the aggressive growth stock group, and 9.0% for the S&P 500, which now tells us they are both its historically, very attractive levels. And that’s another building block. In our case for the new bull market, stocks are undervalued, aggressive growth stocks are very undervalued.
The Information in contained here should not be taken as financial advice and should not be acted upon prior to meeting with a financial professional.
