ATFX-Analyst: US stocks are in their weakest bull market on record, and investors should remain cautious

According to data from Ned Davis Research, the current stock market rally began in October 2022, and the S & P 500 has continued to rise since then.The gains reached more than 30% at the peak, but it was one of the weakest bull markets on record。

The investment firm stressed last month that the current stock market rally is the third weakest start to a new bull market since 1950, and with good reason.

NDR's Ned Davis said in a report on Monday,Rising valuations and the Federal Reserve's continued monetary tightening have limited the potential upside for stocks.

Although NDRs are still overweight stocks, especially as the market enters a seasonally favorable period, investors still have many reasons to be cautious.

The NDR said that the internal signals below the stock market underscore how weak the current bull market rally in stocks is.

First, the price-to-sales ratiovery high。

The price-to-sales ratio of the S & P 500 remains too high, above the peak of the dotcom bubble in 2000. For Davis, this shows that the stock market is too expensive.

He said, "The market is still overvalued.Although valuation is not a good short-term indicator, in the long run, value is important. "

Second,Weak demand for stocks。

Typically, when a bear market in stocks ends, demand for stocks spikes, as measured by volume. Davis measures the difference between volume demand and supply, a difference that typically flashes buy signals and spikes to 5 or higher in the first few innings of a new bull market.

But he said, "This did not happen in the current bull market, indicating weak underlying demand and a sell signal on August 17。”

Third, market breadthSignal never flashes。

Breadth is a key indicator of how many stocks have participated in the market rally, and the current breadth is low compared to other bull markets in history.

"We did get a big boost early in this bull market, but there was never a situation where the share of stocks bought exceeded the 50-day moving average. It happened in 1987, but this'start-up failure 'is still very rare in a bull market."

And four.Stocks rose slightly, driven by large stocks。

If you strip out eight big tech stocks including Amazon, Apple, Alphabet and Nvidia, the S & P 500 has returned flat so far this year. The report said,Most of the other 492 constituents of the S & P 500 were flatThis doesn't usually happen in a new bull market

"Leadership in bull markets is usually concentrated in different areas, but given that this is not happening in equity markets generally, I have to take that into account," Mr. Davies said.

Fifth,rise and fall line（advance-decline line）。

rise and fall lineAnother measure of the breadth of the stock market is calculated by measuring the difference between the number of rising and falling stocks each day.

"Finally, the chart below shows the days for all marketsrise and fall lineAt a new bear market low! You can see that in the long bull market since 2009, this is very'abnormal ', which makes me think deeply about the health of the market, "Davis said.