OP-ED: Markets Surge In July; Is It More Than A Bear Market Rally?
Published Aug 5, 2022
In the second quarter of this year market sentiment soured, leading to steep declines in nearly all asset classes. This was driven by central banks throughout the globe attempting to corral inflation. Global equities declined 15.7 percent.
Powered by earnings, equity markets surged in July even though the Federal Reserve raised interest rates by 0.75 basis points for two consecutive months. Are we in a bear market rally, or something more sustainable? The S&P was up 9.1 percent for the month, but still down 13 percent year to date. The market gained support from three factors: comments by Fed Chairman Jerome Powell and Treasury Secretary Janet Yellen that the economy is not in a recession, weaker jobs growth in July than in June, and strong corporate earnings reports.
The labor market remains tight. According to Dow Jones, 250,000 jobs were added in July, but that bullish indicator was countered by the fact that more jobs – 372,000 – were created in the prior month of June. This indicator of a slowing economy was taken as a good sign, because it shows that the Fed is achieving its goal of slowing the economy. A slowing economy might mean less aggressive rate increases. If rate increases are slowing, it might mean a shorter or shallower recession, because the Fed will have to pivot to smaller rate increases or none at all. These are hopeful signs. According to the St. Louis Fed president, it is hard to call a recession with a strong and growing jobs market.
The market had been pricing in armageddon, with pessimism running high. To put in a bottom for the market, we usually […]