On October 17 in Not Yet we observed

“This bear market in stocks, like any, is punctuated by rallies, the nascent one of which could last for another few days to few weeks.”

That “few weeks” may have ended last week. The bear market in stocks that began about a year ago has been a slow downtrend with a sawtooth wave superimposed on it. I am no expert in timing the teeth of this saw, but Morgan Stanley’s Mike Wilson been pretty credible, having called this bear market rally in the first place. Wilson said yesterday he thinks it is running out of steam and that the next leg down should take stocks to new lows in 2023 Q1. But mini-rallies should continue to be expected, since each sawtooth has sawteeth of its own in a display of markets’ timeless fractal nature of nested self-similar patterns.

An atypical variable, meanwhile, is in play as well … the new tax on corporate buybacks goes into effect January 1, so there is modest pressure on CFOs to shift buyback activity that might otherwise have taken place in early 2023 into late 2022. We should not be surprised to see a little more support for US stock prices into year end versus a little less with the turn of the calendar.

TBonds, as I remarked on October 27 in the Comments section under Gold Loses Its Luster, bottomed on October 24, and I believe that date marked the beginning of a new bull market. Much of this rally has however coextended with the rally in stocks … as of today most market action has been in the dollar itself. Yesterday for instance stocks, bonds, gold and other commodities were all “down” by about the same amount, in dollar terms.

In short, they basically treaded water while the dollar we just priced them all in advanced. That is, we’re still short of conclusive proof of the genuine divergence between stocks and bonds we’ve been looking for. Today, in contrast, gold and bonds are smartly up in dollar terms while stocks are down. One day of course doesn’t establish a trend, but the fundamental backdrop suggests it’s not far off if not already in progress. Financology remains overweight treasuries and gold and underweight stocks.

Within stocks, we remain overweight exUS versus US. Since we called for exUS outperformance in Where In The World Are The Cheap Stocks on October 12, exUS (VXUS) has outperformed US (VTI) by 6.0% (16.1% vs 9.5% in USD). I want to stress, however, that this is a multiyear expectation and that I have no conviction as to relative performance over the next quarter or two. Financology has a roughly 50:50 US:XS weight versus a market weight of about 60:40. The former is expressed in the equity mix example of A Model Portfolio.