Helllllooooooo.....Echo Bubble......

An "echo" bubble is a secondary, typically smaller, bubble-esque rally AFTER a market bubble has started to collapse. This may be nuances in the symantics of terms, but important in distinction.

That is, the rally from October was initially dubbed as a "bear market rally." And recently, after crossing the mythical 20% threshold, many now consider it a "new bull market".

Bulls and bears are common descriptors of all market movements. Bubbles, in contrast, occur infrequently and have extreme attributes in valuation, speculation, volume, etc. I'm not sure how anyone could argue we have NOT been in another bubble which started to unwind in 2022.

And I would argue the bear market rally has morphed into an "echo bubble", rather than a legit new bull market, for a couple of reasons.

1. Divergence - the bubble has inflated due to the extreme monetary policy since the GFC, and this was exacerbated by fiscal and monetary decisions with Covid. However, that macro backdrop has almost done a 180 with rates going up and QT starting. And yet there's justification for buying the same stocks?

2. Which ones? The FAANGs and mega-tech have gotten the most attention YTD media-wise, but a closer look shows the prior speculation continues and extends much farther. "Innovation" plays, meme stocks, and crypto have all had large advances YTD even though the macro picture has worsened. This "echoes" the enthusiasm for these names even as the justification for high prior valuations (zero interest rates) has evaporated.

3. Speculation remains - Bull markets start when the prior irrational speculation has been washed out. This is typically seen in a big drawdown, regulatory changes, and more. The modest drawdown of 2022 has been mostly filled and signs of speculation, like in equity call volume, suggest mania remains alive and well.

You have to respect the tape, irrational or not. I think last week FOMO and technical algo trading confirmed the kick up from bear market rally to echo bubble status. If we push back above the 2021 high, the bull market label will have to be confirmed. Who knows if the underlying fundmentals will ever catch back up.