on the 9th of December 2024 we posted a video warning that the stock market was due for a short-term pullback since then we've seen the S&P 500 correct by a few percentage points and the RSP an equal weighted version of the S&P 500 correct by about 7% the question now is whether we can already start being more optimistic on the performance of US Stocks or is there more pain to come before us stock market indices finally bought them out there's two reasons for why the stock market is been declining recently the first one is simply
portfolio rebalancing back in early December us fund managers had a 99% exposure rate to the US Stock Market of course that left the market vulnerable to a decline in the event that these fund managers decided to reduce their exposure now while these high levels of exposure don't guarantee Corrections by any means they certainly do increase the odds that one will happen when we look at the stock market on top of this indicator we see that many of these high exposure readings did PR some kind of a market correction if we look at the most recent
data on fund manager exposure however we see that it's declined considerably recently and to us this is a positive sign for the market it suggests that the recent correction in the stock market has allowed fund managers to scale back their exposure to stocks which is what you want to see happen during a healthy phase of consolidation in markets currently fund manager exposure is hovering at around the same level as it was in August April and January of 2024 all of those were Prett pretty good moments to go long on the stock market so with this
rebalancing that's just happened we've actually gotten a little bit more constructive on the stock market today we believe investors should start to look for a resumption of the bull market because during this correction phase over the last month we've seen S&P 500 earnings estimates continue to move higher in fact they've continued to grow at quite an incredible Pace comparable to the earnings growth we saw in the late 1990s which was an incredible period to be in the stock market so despite the recent Market correction S&P 500 companies are providing evidence that they are still growing
at a rapid pace so the bull market that's been in place since late 2022 is still intact and we believe has room to run higher from here the technical structures that we're watching on stocks are very much still pointing upwards at the start of 2022 for example the S&P 500's moving averages were curling downwards and price was breaking below them which was a huge red flag for stock market performance we can say the same thing about the topping process in 2008 where moving averages were also curling downwards and price was also breaking below these moving
averages this bearish structure continued throughout the entire bare Market of 2008 that being said stocks may not be completely out of the woods in the short term we're not ruling out the possibility of one final leg down before stocks resume their uptrend and that brings us to the second main factor that's been driving stocks lower and that is spiking us interest rates this is a chart of the United States 10-year government bond yield and over the last few months we've seen this 10-year interest rate move up considerably this is a massively important Financial variable and
this recent move up is what's been driving the stock market's correction recently many of the corrections in the stock market that we've seen over the course of the last 2 years were driven by similar moves up in interest rates and today's market volatility is absolutely nothing different in each case however as soon as the 10year interest rate peaked the stock market bottomed and began a significant move higher when interest rates on us treasury bonds move up it leads investors to reallocate Capital from risk assets like stocks and into treasury bonds as they see the higher
interest rates as more attractive and we think that is what's happening today of course a further move up in interest rates could spark more downside in stocks but as soon as interest rates reverse you're going to see a violent leg up in stocks the question now is how high can interest rates go at the end of the day long-term interest rates in the United States follow what's called GDP growth GDP growth is essentially how much the total US economy is growing each year right now US GDP growth is hovering at around 5% and surprise surprise
the 10-year government bond yield is hovering at around 5% over the last year GDP growth has gradually been trending lower and we think there's a good chance that this trend continues or at best that GDP growth stabilizes at around 5% so that means at most the 10-year yield should be hovering at around 5% we don't believe that we're going to see a big pickup in GDP growth any time soon that could cause long-term interest rates in the US to spike much higher so zooming back in on the recent action on the 10-year government bond yield
it's not impossible that we see interest rates rise a little bit more here to hit 5% or 5.2% but that's really the maximum move up that we'd expect to see before a big reversal so putting all of this together we're more constructive on stocks now than we were back in December we're not ruling out the possibility of a final move down in stocks if interest rates continue spiking before the stock market moves higher the maximum draw down Target that we've highlighted to our clients is 5,600 points on the S&P 500 the bet that we are
more confident in in the short term however is gold gold began a brand new bull market in 2024 breaking out of a longterm basing pattern over the last few months we've also seen gold consolidate a little bit but if we add some key technical levels we see that gold has just bounc off the bottom of a key price Channel we actually sent out a few buy alerts to our clients initiating trades on gold mining stocks that we think can outperform significantly if the gold bowl Market continues from here if you want to follow all of
our trades buy and sell alerts as we're making them in real time and also know exactly what we're thinking about when it comes to each trade make sure you subscribe to our website at Bravos research.com
