This bull market isn’t finished yet, but stocks could lose up to 10% from here

Strategist Hayes Martin: ‘Be prepared for a more severe intermediate pullback’

Stock-market strategist Hayes Martin has good and bad news for stock market bulls.

First the bad: The decline that began in late July/early August will eventually take between 8% and 13% off the market averages, Martin says. (The S&P 500 is underwater in August already.) The good news, he adds, is that the coming decline will not spell the end of the bull market and the start of a new bear market.

Martin, president of the advisory firm Market Extremes, is one of the few market experts to whom I often turn to for insight. When an email from him arrives in my inbox, I pay attention. (For the record, his advisory service does not contract with my auditing firm to calculate his service’s performance.)

One such email from Martin arrived late in the day on Aug. 1. In contrast to prior emails in which he said the market’s advance was on solid ground, in this one he reported that the market’s “internals” were “deteriorating.” He concluded: “Although I do not expect a major decline to result from this, we should be prepared for a more severe intermediate pullback. A defensive posture is warranted under such conditions.”

From Martin’s Aug. 1 email through Aug. 15, the S&P 500 SPX slipped 3% while the Nasdaq Composite COMP is down 4.6%.

In a follow-up email, Martin said that, based on his work, this correction has further to go, in the 8% to 13% range. Yet because his analysis shows that the market’s internals have only modestly deteriorated, in contrast to the severe deterioration seen at bull-market tops, he adds that “I expect the advance to resume” once this correction runs its course.

As we consider Martin’s analysis, it’s worth remembering his prior comments over the past year and a half. In late May/early June of 2022, for example, in the midst of the bear market that began the January before, he predicted that the market would stage a countertrend rally in which the technology sector would rise 15% to 25%. The Nasdaq Composite over the subsequent three months rose 16.5%.

After that rally ended, the bear market resumed in earnest and by early October 2022 the Nasdaq had more than erased that 16.5% gain. At that point, Martin forecasted a strong “reflex bounce,” though not a new bull market, in which the market averages would rise 10%-15% and “the technology-dominated indexes may well show gains in the 15-20% range.” The market’s low was on October 12. Though Martin in early October did not envision a new bull market, and only later turned more bullish, he deserves credit for forecasting a strong rally.

The bottom line? To the extent you give credence to Martins’ analysis, you may want to shift your stock portfolios into a more defensive posture.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at [email protected]