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Thursday, June 23, 2022
Today’s newsletter is from Jared Blikre, a market-focused reporter at Yahoo Finance. Follow him on Twitter @SPYJared.
Bear market rallies are the stuff of legends.
Born out of a combination of conditional bearish buying and FOMO — or investors’ fear of missing out — the goal of the bear market rally is to maximize investor pain. And these events do it well.
The market attracts new buyers, eventually sending stocks to new lows.
At the start of bear market turns, these rallies are flashy and short-lived. As the market goes down, these rallies tend to get bigger, more exciting, and quite deceptive.
During the financial crisis, the market rigged investors with three small rises from fall 2007 to summer 2008 – by 8%, 12%, then 7%, respectively – generating new long positions close to 2007 highs.
And then the markets really started playing with investors.
Declines of 45% and 51% from record highs were accompanied by increases of 18% and 24% in the fall of 2008, moves that came months before the ultimate market low in March 2009.
Suddenly, the headlines read: “Stock market at 20% lows”, prompting traumatized investors to eventually pull the trigger on what was left of their cash position – to see new lows in the weeks and coming months.
When the dotcom bubble burst, it took almost three years for the bear market to finally shake bag holders from the first tech craze.
The S&P 500 fell 49% from record highs before bottoming out at the end of 2002. During 2001 and 2002, the S&P 500 recorded no less than four rallies of 19% or more.
It will be necessary to wait until the spring of 2007 for the benchmark index to reach a new record. Just in time, of course, for the aforementioned financial crisis.
Bear markets test investors, both up and down. When the news cycle seems like it can’t be horrifying anymore, stocks grab an olive branch. Perhaps it is a reprieve from a hawkish central banker or a dizzying drop in oil prices.
But whatever the catalyst, bear market rallies can send stocks racing, and weary investors don’t want to miss that.
At its most recent lows, the S&P 500 (^GSPC) was down more than 23%, and rallies so far this year have been shallow and short-lived. The biggest was a roughly two-week move at the end of March that produced an 11% rebound for the index.
The March move was particularly difficult for traders, as this rally hit February highs that weren’t too far from the S&P 500’s record close seen on Jan. 3, 2022. Anyone who bought this breakout suffered a loss. 16% over the next seven weeks.
This bear, it seems, is still young.
A less powerful 7% rally in late May and early June was reversed by inflation rearing its ugly head again, with a four-decade high for the consumer price index tipping the S&P into territory.” official” of the bear market.
And now we are barely out of new lows. Still.
From there – if history is any guide – this bear market is only going to get trickier and more frustrating as subsequent rallies likely get bigger.
“If they don’t scare you, they wear you out,” says Brian Shannon, founder of AlphaTrends.net.
Something to keep in mind if we’re sitting here at the end of June, July or August watching the biggest rally of the year.
What to watch today
8:30 a.m. ET: Current account balanceQ1 (-$275.0 billion expected, -$217.9 billion in prior quarter)
8:30 a.m. ET: Initial jobless claimsweek ended June 18 (226,000 expected, 229,000 the previous week)
8:30 a.m. ET: Continuing claimsweek ended June 11 (expected 1.320 million, previous week 1.312 million)
9:45 a.m. ET: US S&P Global Manufacturing PMIJune preliminary (56.3 expected, 57 in previous month)
9:45 a.m. ET: ET: S&P Global US Services PMIJune preliminary (53.5 expected, 53.4 in previous month)
9:45 a.m. ET: ET: S&P Global US Composite PMIJune preliminary (53.6 in previous month)
11:00 a.m. ET: Kansas City Fed Manufacturing ActivityJune (23 in the previous month)
FactSet Search (FDS) expected to report adjusted earnings of $3.21 per share on revenue of $476 million
Ritual Aid (RAD) expected to report adjusted loss of 66 cents per share on revenue of $5.7 billion
Apogee Companies (APOG) is expected to report adjusted earnings of 55 cents per share on revenue of $326.22 million
fedex (FDX) expected to report adjusted earnings of $6.86 per share on revenue of $24.57 billion
Blackberry (BB) expected to report adjusted loss of 5 cents per share on revenue of $163.5 billion
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