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Bear Market Rally — Have we bottomed? Or will we test the lows again?
Well, I think it’s unlikely that we are done with the bear market, especially with a recession on the horizon.
Some experts think that the recent rally in the last week or so is nothing but a relief rally, and they advise us to be wary: don’t get sucked in only to buy high and sell low. It turns out that this isn’t a great strategy – short- or long-term.
Because of the nature of the macroeconomic environment, namely excessive headline inflation and persistent supply chain challenges, don’t expect a switch to flip and downward pressures to exit the market.
The major central banks of the world have this massive inflation problem in common. Tightening cycles are in full swing, whether here in the States or across the pond.
Of note, the CCP has decided that rates need to remain low to stimulate growth. I’d argue that a strong dollar makes this a decent idea, given their reliance on exports to the States, but that’s not really my forte, so I won’t write a book about it today.
If you’re really following the markets, it would appear that we entered a bear market because of interest rate and growth fears. But I will argue that here is where we shall stay with an earnings bear market coming up.
In the next few weeks, we are going to start seeing earnings for reporting periods that occurred as consumers and businesses alike started to sour on the state of affairs for the US economy. When we talk about record earnings for the S&P, I think that period is behind us. This next quarter probably won’t be as great as the last.
Once we are through phase two of this puppy, I expect a third phase: the recession-induced bear market. Even if it is just for a short period of time, e.g., a few quarters, GDP is likely to contract as we tighten and consumers protect their bottom dollar.
The market’s reaction to entering a recession might be purely emotional or psychological, or whatever you want to call it. However, there will likely be some weighty effects on markets if this actually happens.
Only you can decide how to react to a poor earnings season or an incoming recession. Best of luck keeping your wits about you.
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