Bear Territory | May 20,2022

AUTHOR: Jason J. Roque, MS, CFP®, APMA®, AWMA®
TITLE:       Investment Adviser Rep – CCO
TAGS:   S&P 500, NASDAQ, Rates, Inflation

Bear territory was reached Friday, signaling a sustained rangebound period. Does it mean something else this time?

Monday                            S&P 500 0.40% | NASDAQ 1.21%

Markets swung between losses and gains throughout the day. Towards the end of the day, it became decidedly negative, closing out in the red. There was very little economic data to swing the markets one way or the other.

Tuesday                            S&P 500 2.02% | NASDAQ 2.76%

The jump in markets came on the back of strong retail sales. There was a fear that retail sales would weaken on strong inflation data; however, the consumer remained strong. Capacity utilization also came out yesterday at 79%. The signal tells investors of tighter economic conditions, which lend themselves to inflation when the rate is in the 80’s.

Wednesday                      S&P 500 4.04% | NASDAQ 4.73%

Equities continued their march lower on Wednesday. The S&P 500 broke through the psychological floor of 4000 points, but that level carries little factual weight. Housing data showed future weakness for new home sales. Additionally, oil inventories fell unexpectedly. Oil markets were up early on the news; however, they faded as the equity sell off gained steam. The main catalyst to the selloff was reports from Walmart, Target, Home Depot, and Lowe’s that detailed consumer buying behaviors. The big box stores indicated that consumer activity has shifted to more conservative buying. To the contrary, the home improvement stores have indicated no such change that consumption is showing strength.

Thursday                          S&P 500 0.58% | NASDAQ 0.26%

Quite often, following a market sell off, we will see a bounce the following day. Not on Thursday… Equities oscillated between gains and losses throughout the day, ultimately landing slightly lower. The S&P 500 is off approximately 19% from its high. It is inching ever closer to bear market territory (20% fall from recent highs).

Friday                                S&P 500 0.01% | NASDAQ 0.29%

Markets opened in the green in reaction to lending rates in China being eased. That faded quickly and the S&P 500 pushed down about 1.4%. This brought the index to 20% down from it’s high. Late in the day, markets rallied to end unchanged.

Conclusion                       S&P 500 3.05% | NASDAQ 3.82%

The S&P 500 fell 20% from their January highs. The significance of this is that a fall of 20% marks a bear market. During recessions, this is a market where rallies will occur (markets hang lower rather than putting in new highs). Bear markets in expansions frequently are short-term swings of losses rather than sustained down periods. At the end of 2018, we hit bear market territory and markets proceeded to rally capturing new highs throughout 2019. This may be a recent point, but it does give us hope that the storm may be almost over.

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