Bear markets are difficult and disappointing. Volatile trading and falling asset prices can wear down even the most experienced investors and their pocketbooks. But the truth is, after even the worst of all bears, there’s always a bull market. Here’s how to position your portfolio for the inevitable rebound.

History as a Guide

After the 1973-1974, 1987, 1990, 2000, and 2020 bears, the one group that brought back the bullish vibe to Wall Street was technology. Companies like Intel (NSDQ: INTC), Cisco Systems (NSDQ: CSCO) and Apple (NSDQ: AAPL) delivered products ranging from faster microchips, better ways to connect networks, and the devices with which to harness the power of the newly developed components and infrastructure.

Alphabet (NSDQ: GOOGL) galvanized search, Amazon (NSDQ: AMZN) revolutionized retail while expanding into a myriad of hugely profitable businesses, and Microsoft (NSDQ: MSFT) became a quiet leader in data storage.

Indeed, the bull markets of the past five decades have been driven by technology. But the truth is that technology has become stale. Sure, we now have electric vehicles (EVs), and a full-fledged Internet chockfull of streaming services to go along with nearly flawless PCs, laptops and cell phones.

Everything is automated and run by algorithms.

Thanks to these companies consumers can buy anything, talk to friends in distant lands with a few text strokes, bank and watch their favorite shows online.

That’s fantastic stuff. And it’s hard to imagine a world without these great things. But really, that’s old news.

The Refrigerator Syndrome

The truth about technology is that at some point, even the coolest of gadgets follows the same track as a refrigerator. They certainly are part of our daily lives, and we can’t live without them.

But everyone’s got one, and because they are part of what we do, over time they get embedded in routine and become slower growth vehicles for tech companies. Think BlackBerry (NYSE: BB).

As a result, companies that once were growth juggernauts become the next Frigidaire, or just disappear.

Case in point: Look at the price charts for what were once stock market darlings, Intel and Cisco Systems.

Intel still makes excellent microchips and sells lots of them. Just try powering up your HP laptop without an Intel chip. But the stock has seen better days. And with the changing geopolitical landscape, an emerging global recession and the potential for a reduction in sales to China due to recent U.S. laws, the company recently announced that it will be laying off workers. That’s not the stuff of robust growth, or new bull market leadership.

Cisco Systems still leads the way in routers and many of the other components that make the Internet and telecom systems work. Cisco, too, makes plenty of money. But in the stock market, nobody really cares as the price trends for both companies illustrate. And in the news, we are now reading about Cisco being bought for its dividend. Yawn!

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My point is that the next bull market may be a completely different animal than what we’ve become accustomed to.

The Futurist’s View

Futurists describe a world where artificial intelligence will run everything while humans kick back and relax. This world will feature smart homes, self-driving cars and the Metaverse. In that world, all we will need is to don our handy dandy headsets and our wildest dreams will be fulfilled for $1,500, according to Meta’s (NSDQ: META) latest announcement.

Many of these innovations are already here for some people. But in the futurist’s world, they will be there for everyone everywhere, 24-7.

A Cold View of Reality

The future may well be as the futurists predict. Yet today, we have a different set of realities on the ground: inflation, energy inefficiency, supply chain disruptions, regional conflicts with possible global expansion, and potential food shortages, all courtesy of a complex set of issues that I recently described and which started with the COVID pandemic.

In the present, and when the next bull market arrives, we’ll still have to deal with these negative factors, at least as the world transitions. Thus, I’m not sure that virtual food in the Metaverse will be as filling as the real thing I can actually get at the grocery store, even at double last year’s price. And I’m not sure my self-driving EV will take me anywhere if there is no electricity to power it, or anywhere to go for that matter because businesses have nothing to sell due to supply chain disruptions.

What I’m saying is that the new bull market, as with all its predecessors, will belong to companies who can solve the problems facing humanity at the end of the current bear market.

As far as I can see, the biggest problems in the future won’t be addressed by faster Internet connections or the latest video technology. The next bull market will be about more basic aspects of life, such as being able to power homes, cars, factories and server farms which store data.

A Preview of the Next Bull Run

The concept of relative strength is simple. It’s best appreciated on a price chart which shows an asset or asset class is rising, or falling at a slower pace than the general stock market. Moreover, stock market sectors which buck the down trend during a bear market often become the leaders of the next bull market.

Based on this type of analysis, the next bull market is likely to be led by companies that are able to solve the world’s energy and related problems. And that makes sense, because our world runs on energy, both electricity as well as fuel for transportation.

Moreover, if current conditions remain in place and are extended into the future, energy demand will increase in the face of insufficient raw materials and the ability to deliver them efficiently to where they are needed.

Nowhere is this message clearer than in the price chart for companies most people may have never heard of, such as Matador Resources (NYSE: MTDR), which specializes in oil exploration and production in the Southeast U.S.

Note the steady Accumulation Distribution (ADI) and On Balance Volume (OBV) indicators. These are signs that money is flowing into the stock, even as it trades near its 52-week highs. Certainly oil exploration stocks can be volatile, but presently, and likely in the next bull market, this will be an area to put some money.

Compare MTDR to Meta Platforms, which just made another new low. Its ADI and OBV for TAN are falling, and seem to be gaining speed. That’s because short sellers (falling ADI) and sellers (falling OBV) are in agreement.

Plainly stated, former buyers are bailing out of these sectors just as highly pessimistic short sellers are piling on. These are not the characteristics of new bull market leading areas of the market.

Bottom Line

My point here is not to beat up on one sector over another, but to offer an alternative point of view regarding the current bear market and what may be the best investments for the next bull market. And yes, I may be wrong. Conditions may change radically, once the Federal Reserve reverses its focus on higher interest rates.

As a value investor, I recognize that shares of companies like Intel and Cisco Systems will bounce back in the next bull market. And yes, I plan to own some of them in the future if their prospects improve. But at the moment, there seems to be a disconnect between expectations about the future and the reality on the ground. Much of it has to do with the changes in daily life after the COVID pandemic.

In past turnings between bear and bull markets, companies like Intel and Cisco Systems were in a position to deliver what the world needed most at the time, game-changing technology which would increase productivity, make communications faster and more reliable, and enhance people’s daily lives. But as their price charts show today, everyone’s days in the sun eventually fade.

Certainly, the artificial intelligence driven future featuring the Metaverse and self-driving EVs may well be the way the technology realm works out.

It just seems that in the present, the stock market, which is ironically run by artificial intelligence algorithmic traders, is betting that energy and related infrastructure investments make more sense than those areas of the market which are directly related to the attainment of the futurists’ version of what lies ahead.

If I’m right, the next bull market may be all about companies which deliver reliable quantities of nutritious food, enough natural resources to power an energy hungry world, and those companies which deliver well-built roofs over people’s heads…all in the real world.

Trade what you see.

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