3-minute read
How should I feel right now? Should I feel like this?
Like what?
Like a turkey on November 25th.
As in, “Is the worst behind us?”.
Yep, I need to know. Has the market bottomed?
Well, here’s what we know so far:
I know. It’s been quite the summer. But does this rally have staying power?
My gut is telling me…no.
Ugh. Why’s that?
History tells us a couple things about bear markets. We know they last on average 12 months. It then takes approximately 2 years (21 months) to reach the market’s previous high.
So by that math we’d have to wait until September 2024 to recover all of our losses?
Correct.
But aren’t the markets moving faster these days?
It sure seems like it. Nearly one-half of the trading days this year has seen the S&P move 1% or more in either direction.[1]
Then why can’t history be wrong? The past isn’t always prologue.
You’re right. But even dead cats bounce. Check this out:
Help me out a bit.
A bear market rally is a short-term rebound in the market during a broad bear market downturn. Unfortunately for those glass-half-full personalities, the glass tends to tip over.
So…?
The graph above plots every bear market rally in the S&P since 1950. The average bear market rally sees the market rebound 15% over a span of 32 trading days (approximately 6 weeks). This chart is somewhat dated but the current rally stands at around 44 trading days.[2]
The historical perspective is interesting, but how can I ignore the hopeful signs out there? We’re finally seeing headlines around peak inflation after months of doom and gloom.
True, it’s possible we are finally trending towards price stabilization and the market is happily pricing that in.
And, correct me if I’m wrong, but I get the sense that corporations are still making money.
You are indeed correct. 90% of S&P companies have reported earnings for the second quarter and earnings growth is well above original estimates.
Not to mention the labor market is still strong. I imagine you saw the July payrolls data. Are you SURE this rally doesn’t have legs…?
I hope it does. But there are some things that give me pause aside from the usual time it takes to recover from a bear market.
Like what…
You are correct in saying that there are signs of peak inflation. However, certain components of inflation can prove harder to drive down. These stickier components (rents, wages) may weigh on the economy for quite some time.
Doesn’t the Fed seem to have a decent handle on that though?
So far, so good. But never count out the possibility of the Fed going too far and creating unintended economic harm. Similarly, Wall Street has only been navigating higher interest rates and less monetary support (i.e., quantitative tightening) since March. This may take more time getting used to.
I prefer to be hopeful, for better or for worse.
I’m optimistic as well. The people who are referring to this economy as a calamity are doing it mostly for political reasons. However, it is always prudent to not expect a quick recovery. Because the market can leave you looking like DeAndre Jordan.
[1] Time period: January 3, 2022 – August 11, 2022
[2] Through August 12, 2022.