When do we reach the bottom of the dip? (2022-24 Edition)

[Dr.PI]

The CPI/LIK for Switzerland came out on Monday and now I can do calculations according to the procedure that I have outlined.

But first another milestone of note. My benchmark, “MSCI ACWI IMI Net Total Return” in (nominal) USD have started to make new All-Times Highs since few days, the latest being, you have guessed it, on 12.02.2024.

Does it mean that we are out of the dip? Not in my playbook.

The latest 2024 maximum of my usual benchmark “MSCI ACWI IMI Net Total Return in CHF” was 1855.57 CHF, also on 12.02.2024. In nominal terms, this is a level not seen from February 2022, i.e. we have reached a 2 years maximum. It is only -4.7% from the previous ATH (1947.97 CHF, on 16.11.2021), +21.9% from the 30.09.2022 bottom, +16% (!!!) from the 26.10.2023 bottom and +6.7% YTD.

However on inflation-adjusted basis it looks as follows: -9% from the previous ATH, +20.1% from the 30.09.2022 bottom, +15.9%from the 26.10.2023 bottom and +6.5% YTD.

Nevertheless, the drawdown of less than 10% from ATH, a level last seen in May 2022, means that we are now in a “normal” market state, although the last ATH was more than 2 years ago.

Statistics, black magic and financial mathematics

To classify the state of the stock market, as quantified by a specific index, I am going to consider these three regimes: Normal State: The market is classified as in a ‘Normal State’ when the market index is less than 10% below its all-time high (ATH). Correction: The market enters a ‘Correction’ phase when the index is between 10% and 20% below the ATH. Bear Market: The market is in a ‘Bear Market’ regime when the index drops more than 20% from the ATH. These regimes can be utilize…

This means, for example, if I were a retiree living from my portfolio, I would go from “soft economy mode” (“correction” phase in the market) to the “normal” portfolio withdrawal mode.

Stay tuned.
PI