It’s official. The bear is dead. The S&P 500 has finally cleared the closing threshold that marked a 20% rise from its October 2022 low, meeting the criteria for exiting a bear market.

The bear market, which started in January 2022, was the longest since 1948. It went paws up at market close Thursday.

The artificial intelligence craze has driven the rally in large-cap tech stocks, which dominate the S&P 500. However, in recent days we’ve also witnessed a rise in the New York Stock Exchange Advance/Decline (NYAD) line, a welcome sign that market breadth is improving.

Another bullish sign is the falling CBOE Volatility Index (VIX), the so-called “fear index.” Large institutional investors hedge their portfolios using S&P 500 options to position themselves to gain whether the market falls or rises. The VIX monitors these trades to measure market volatility.

The VIX rises when demand for put options outweighs demand for calls. Put options increase in value when the S&P 500 declines in value. The VIX falls when demand for call options outstrips demand for puts. Call options increase in value when the index goes higher.

When the VIX surpasses 20, you can expect greater than normal volatility over the next 30 days, and vice versa. The VIX has pulled back below the significant demarcation of 20, to hover below 14. That’s a positive sign; a lower VIX means less fear and stress in the market.

The bull case is getting stronger. The main U.S. stock market indices closed Friday as follows:

• DJIA: +0.13%
• S&P 500: +0.11%
• NASDAQ: +0.16%
• Russell 2000: -0.80%

The S&P 500 posted a four-week winning streak, with buying from retail investors picking up over the past five trading sessions after a three-month lull.

The Chinese boogeyman…

Now let’s turn our attention to overseas. Fearmongers continue to warn that the U.S. economy and the greenback will crash, turning Americans into vassals of the wily Chinese.

I’ve heard these same views repeated like a needle stuck in a scratched record, ever since I started in publishing more than four decades ago. This dystopian scenario still hasn’t happened.

New trends have emerged to counter the “America-is-in-decline” school of thought. On Thursday, China’s biggest banks lowered their deposit rates on instructions from the government, paving the way for the People’s Bank of China to reduce other interest rates.

China’s gross domestic product growth has come in surprisingly weak, weighed down by falling exports, a troubled and debt-ridden housing market, and high unemployment.

Many analysts have revised downward their latest growth expectations for the world’s second-largest economy. China is now grappling with the prospect of deflation (see chart).

The previous expectation was that China’s economy would get a jolt of adrenaline after Beijing lifted its draconian COVID restrictions, but consumer spending in the U.S. and Europe has turned away from goods and toward services, which has dampened demand for China’s manufacturing output.

Due to weaker growth, China’s national currency the yuan is down 3.2% compared with the U.S. dollar so far this year, making the yuan among the worst currency performers in Asia.

It doesn’t help China’s future growth prospects that, according to current projections, the country’s population is on track to drop below 1 billion by 2080 and below 800 million by 2100.

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Despite the production cut announced on Sunday by OPEC+, crude oil prices have actually fallen this week, suggesting that the Chinese government’s latest attempts to stimulate the economy won’t accomplish much. Traders seem more worried about oil demand than they are about sufficient supply. It’s yet another reminder that OPEC+ has lost market clout in recent years.

Meanwhile, small-caps and cyclical stocks have outperformed in recent days, as U.S. economic growth continues to come in better than expected and the jobs market remains resilient.

With the U.S. debt ceiling crisis behind us and the Federal Reserve seemingly on the verge of a pause in tightening, we could see investors increasingly shift toward riskier assets, such as cyclical stocks.

Auspiciously for the U.S. economy and stock market, the Federal Reserve reported Thursday that U.S. households’ net worth rose by $148 billion, or 0.9%, to $17.05 trillion during Q1 2023. The rising value of equity holdings more than offset a decline in real estate value.

Big week ahead…

Next week’s economic calendar features three crucial events: the U.S. consumer price index (Tuesday); and the U.S. producer price index and the Fed’s interest rate decision (Wednesday). If the inflation numbers come in soft and the Fed hits pause, the new bull market is likely to pick up the pace.

However, if you’re still worried about market risks, I suggest you consider the advice of my colleague Robert Rapier.

As chief investment strategist of Rapier’s Income Accelerator, Robert has developed strategies that make money in bull or bear markets.

Robert Rapier can show you how to squeeze up to 18 times more income out of dividend stocks, with just a few minutes of “work” each week. Click here for details.

John Persinos is the editorial director of Investing Daily.

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