Not yet, but we may be out sooner than we thought.
It’s easy to be bearish right now.
A two-year bull market has crashed to an abrupt halt this year, with rising interest rates, recession fears, and Russia’s invasion of Ukraine triggering a sell-off that’s affected almost every asset class.
But stocks don’t have much further to fall. According to a private wealth high management of $120 billion.
“We’re experiencing a repricing, so it’s hard to put yourself out there as an optimist. But there are plenty of profitable companies that now look attractive.”
“High- net-worth investors are asking the same questions as everyone else right now. They want to know when this bear market will end, and how bad things will get.”
“It’s perfectly reasonable to expect we’ll finish this year in the red. But we’re clearly near the bottom, and I’d expect it to look more like an average down year than a complete washout.”
The market may not recover completely by the end of 2022. But it is expected that the S&P 500 to bounce back and finish the year with single-digit losses.
Here is why.
A dovish Fed
Monetary policy is weighing on investors right now, with Federal Reserve governors creating rate hike uncertainty.
But Fed may revert to 25-point rate hikes faster than expected, stopping the stock market rout. Markets are behaving as if they’re expecting that the Fed won’t get it right. But they won’t meet in August and then they could hike by 25 in September, and that would be a catalyst.
Inflation cools down
The US central bank is hiking interest rates to try to tame inflation. But there’s some evidence that prices are already rising more slowly – with inflation easing by 0.2 percentage points to 8.3% in April.
If the pace of inflation continues to slow, there will be less of a need for Fed policy action, which in turn would provide a tailwind to stocks.
Inflation has peaked and is coming down. If there are lower readings in May and June, that’ll be another catalyst for stocks to rise.
Fewer job openings
Phenomena like the ‘Forever Resignation’ have created millions of job openings in the US. A gap between job openings and available workers creates wage pressures, which pushes up inflation and eats into company profits.
The gap will need to fall if stocks are to rally. The most investment analysts are too focused on interest rates and inflation and haven’t fully considered the potential economic impact of labor markets.
If the number of available jobs falls, that’ll curb inflation and be a catalyst for the market. But it’s really hard to hire in the US right now, and that could be a canary in the coal mine for the overall state of the economy.