Everyone Is Bearish And That’s Exactly Why You Should Buy | Ryan Detrick

Extreme bearishness and heavy cash point to a year-end rally

Detrick argues the market is set up for a year-end rally. Sentiment and cash positioning look as bearish as they have at past bottoms, while earnings are strong and valuations have compressed. A weak stretch into the midterms fits seasonal history, which has favored stocks once the election passes.

Takeaways

• Extreme bearishness is a contrarian buy signal. Hedge funds hold their largest short positions in five years, inverse ETF volume is huge, and three-month money market and cash ETF flows are the highest Detrick has seen. He says that much cash has historically marked market bottoms.
• Midterm seasonality points to a late-October low. October is often weak, but a late-October low tends to precede a rally. The S&P 500 was higher a year after each of the last 19 midterms, by about 15% on average, and October and November are the strongest months.
• Election results matter less than market direction. Democrats will probably take the House, and Republicans have a better chance of holding the Senate. The S&P 500 rose in the last 13 split-Congress periods, and Detrick says gridlock can be good for markets.
• The bull market is broadening, not ending. The S&P 500 has gone nowhere for about five months after a 15% rally in April and May, but rotation is underway. Software is recovering, healthcare and staples are rising, and 300 to 400 stocks climb on days tech falls.
• Valuations fell while earnings kept growing. S&P 500 valuation is down 15% this year while earnings growth exceeds 30%, and NVIDIA and Amazon look cheapest in a long time. He expects multiple expansion next year. The bears' best argument is AI spending beyond the railroads and the 1990s Internet bubble.
• Strong earnings and a Fed pause ahead. Detrick expects one more hike in December, then a pause. About 15% of companies have reported and 88% beat on EPS. He says the consumer is not dead, citing restaurant spending growing 10 to 11% annualized.
• Bitcoin and gold replace bonds, not stocks. Carson's tactical models hold about 68% equities, roughly 1.5% in Bitcoin and about 3% in gold, newly added. Detrick says these replace fixed income, and he expects sticky yields with nominal GDP growth of 6 to 8%.