Special Report: July 2024 Market Conditions

This special report covers an important historical pattern — which could be IN PLAY over the next few weeks.

• It will be a reference guide I’ll update yearly going forward, as a reminder of what could be a significant historic turning point — in an election year no less.

• I’ve seen this pattern repeat time and again, especially when the market was overbought in an extended Blowoff, and with big catalysts approaching.

• I first learned this pattern in 1998, and never forgot it.

---

MELT-UP VS. MACRO (continued)

I wrote this earlier today:

• When Stocks are going up every day, nobody cares about "Macro".

• Then one day, Volatility comes back, and all of a sudden Macro becomes essential.

• But I believe Macro is always essential.

• I also believe we’re approaching a critical point in markets, where having a basic understanding of Macro history is absolutely essential for survival.

• Especially if liquidity and volatility start to shift — as they may be doing now.

To this point, let’s start with the foundation: where are we in the cycle?

• Historically, markets celebrate and overshoot to the upside after the Fed pauses.

• Eventually, the bill comes due — and markets realize the implications of what the pause, and subsequent rate cuts, actually mean.

---

Below (left vertical line), the Fed’s last rate hike this cycle was on July 26, 2023 — almost a year ago.

I’ve normalized the S&P’s return since that date — on the y-axis the market is up +22% since July 2023 (*and +37% from the October 2023 low):

In the bottom panel of the same chart, we see how long the Fed pause tended to last historically: in 1980, 1989 and 2000, the Fed paused just a few months and then cut. (*Not shown due to space limitations, 1974 was similar).

The 15-month pause from June 2006 to September 2007 was unprecedented.

From 2006-2007, the market rallied relentlessly in a melt-up, gaining +23% — almost the same net gain we’ve seen in the S&P since July 2023 (even with the 10% drop last fall).

(*In the top panel, 2006 is normalized to when the Fed paused, so we can compare the returns with July 2023, when the Fed also paused.)

Impressively, despite the correction into October 2023, the market *caught up rapidly* to the 2006 rally — and by March of this year, the gains began tracking similarly (even the pullback in April 2024 was similar to the pullback in March 2007).

The market has now reached a similar “time and price” to the 2006-2007 Blowoff top area.

• History doesn’t repeat exactly, and we’re not going into another 2008, but cycles can be similar and this one could be approaching its conclusion — especially as the Fed is likely cut in the coming months.

• This is important because history shows that rate cuts, when they begin, are not something to be celebrated. They should usually be sold into.

• Additionally, on the other side of a Blowoff, the market typically demands payback — therefore this is where we want to be laser-focused for clues that momentum may be fading, and a bigger Top is being constructed.

• (*The topping structure in 2007 began “right about now” and lasted 3 months.)

• So it could take a bit of time to develop, but if momentum fades, the implications would be significant in my view.

To this last point, we’ll discuss current market conditions — and an important historical pattern.

Let’s continue: