When Michael Burry of the ‘Big Short’ fame empties his portfolio, well almost, the global investors do take note. He is best known for betting against the housing market ahead of the 2008 stock market crash. Michael’s June 30 disclosures show Scion Asset Management had exited all companies including Alphabet Inc. and Facebook parent Meta Platforms from their portfolio. What he only holds are shares of The GEO Group (GEO), a private-prison operator.

But, since the lows of June 2022, the markets have reversed and S&P 500 has climbed 17% with the Nasdaq Composite clocking gains of over 20% in this period. Nasdaq index still remains down about 21% from its record high of November 202. However, the recent gains led analysts at Bespoke Investment Group to declare that Nasdaq had exited its recent bear market.

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Has the tide turned and are the bulls back on the rampage? It could be too early to suggest that the bottom has been made but one thing is certain – in hindsight, the picture will be crystal clear and the bottom of the market will be clearly visible.

For example, during the 2008 global financial crisis, S&P 500 rallied over 20% from the lows of November 2008 but later on tumbled another 28% to even deeper lows in March 2009. It was not until an all-time high was reached in March 2013 that investors were able to say with certainty that a new bull market had been born four years earlier.

Meanwhile, based on one’s own portfolio and market models, the predictions and forecasts have started flowing in. Still, taking a calculative call is also not an easy task as there are various factors at play including a Black Swan event.

With rising inflation leading to Fed rate hikes, the real impact on the economy is yet to come out into the open. Various analysts and strategists are having diverse views as far as S&P 500 highest and the lowest year-end target is concerned.

The popular 50% retracement indicator states that once the S&P 500 has bounced back half of the fall from the highs, the index has almost always avoided making new lows.

There’s a contrary view on the street as well. A report from Bank of America Corp., says that on combining the S&P 500 price-earnings ratio with US consumer inflation, it seems the stocks have yet to bottom. Every market trough since the 1950s saw the measure fall below 20. During the selloff this year, it only got as low as 27.
If the track record of the ratio shows that it has worked almost every time in the past, then a stock market crash awaits in the near term.

The blended 12-month forward P/E for the S&P 500 is at 18.2 and technically, the market has rebounded perfectly into the 50% – 61.8% Fibo retracement box from January’s all-time highs. For a long-term investor, any dip, correction, or market crash is always an opportunity to add on to quality stocks or buy new stocks at lower valuations.

(with inputs from agencies)