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It’s happened. The market’s flirtation with the bear market precipice is over. It’s now a full-blown tawdry affair. The S&P 500 officially crossed into a bear market at Monday’s close (down 20% or more from the high on a closing basis).

That means the bull market that began in March of 2020 has ended after 2 years and 3 months. The culprit is inflation, and the Fed’s likely reaction to it. It had been hoped that inflation was peaking and would recede all by itself without the Fed having to be as aggressive as feared. But those hopes were dashed when May inflation came in at a worse-than-expected 8.6%, the highest yet and the worst in more than forty years.

Things have gotten a little better in the market. The situation has gone from bad to crummy.

The S&P 500 rallied from the lows to move away from the bear market precipice. The index also closed the week in positive territory for the first time in eight weeks and actually managed to eke out a very slight gain for the month of May. It’s not much. But it beats spiraling downhill.



For the first time in ages, inflation numbers were better than expected. There were also some positive numbers for the economy today. There seems to be a feeling that stocks have priced in the current negative environment for now. And there is some faint hope that inflation will recede all by itself and therefore the Fed won’t have to drive the economy into recession.

This market has recovered nicely after plunging into bear market territory and beyond the week before last. Unfortunately, the good times probably won’t last.
All year long the market has bounced to some sort of recovery after plunging to new lows. But stocks can’t seem to muster any lasting traction with rising interest rates, high inflation, and a souring economy. Those things are simply too much of a bummer to whistle past.

Treace Medical (TMCI) delivered a Q3 beat after the bell yesterday with revenue of $33.1 million (+53%) beating estimates by $3.03 million and EPS of -$0.22 beating by $0.07.

The market is changing. The risk is shifting from more Fed rate hikes and inflation to a growing possibility of recession in the quarters ahead. The math is changing and so is market rotation.


At the same time, earnings season is here, and we are likely in an earnings recession already. Average S&P 500 earnings shrunk 4% last quarter and are forecast to fall 5% this quarter. Much of that expectation is already reflected in prices and investors will be carefully watching the guidance for future quarters. If that is negative, companies that can continue to grow earnings and buck the trend should be at a premium.

Is the market improving? There are some reasons to believe it might be.
The broader S&P 500 index has come right up to the precipice of a bear market, down 20% or more from the high on a closing basis. It closed down 19% and actually crossed the 20% on an intraday basis. The market had done a similar thing twice in the last bull market but stayed above the line and went on to rally from there.

The weather has finally turned nice here in New England, with a consistent string of 60-degree days and a couple of scorchers thrown in (we set records on Tuesday, with temperatures north of 90 degrees!). That means it’s nearly vacation time! And with vacation comes reading; I’m always on the lookout for good books, investment or otherwise, to help me unwind while I watch waves lap against the sand. Since this is a wealth advisory, of course, I’ll offer up some of my favorite investment-related book recommendations. Heck, I might even re-read one or two of these this summer. Here are some favorites …

This market is having quite a rally. The S&P 500 just had one of the best months ever in July, up 9.1% for the month, and is currently up more than 12% from the June low. Will the good times last?

Investors are sniffing an end game to the misery of ever-rising inflation and an ultra-hawkish Fed that has been dogging the market all year. The market tends to anticipate six months or so into the future. By then, it sees inflation under control and a Fed that is done hiking rates and maybe even talking about easing again.

It’s all about the Fed today. The woefully behind-the-curve Central Bank will announce another Fed Funds rate hike today. The increase is widely expected to be another 0.75%. But some worry it could be 1.00%.

The market’s hopes were dashed when August inflation was worse than expected. That means the Fed will have to continue to be hawkish and for a while longer. Plus, after four rate hikes so far, two straight quarters of GDP contraction, and a bear market; inflation isn’t budging yet.

The market hit a new bear market low. That means that the summer rally was indeed just a bear market rally. And stocks may go lower.

Two things spooked investors, persistent inflation and a consequentially persistent Fed. After four Fed rate hikes, a bear market, and two straight quarters of negative GDP growth, inflation remains sky high and barely budging. The Fed will have to remain hawkish for longer.

The Fed insinuated that it is willing to drive the economy into recession, or deeper recession, to tame inflation. That makes it increasingly likely that only a hard landing can bring prices down. The economy is likely to weaken in the months ahead, dragging corporate earnings down with it.

After an awful September and third quarter, the market roared back earlier this week on bad economic news.

A bad manufacturing and employment report indicative of a declining economy sent Treasury yields lower and stocks higher. The reason is that the sooner the economy rolls over the sooner the Fed will be done hiking and the sooner the market will recover. If we can just get on with a recession, this high inflation and aggressive Fed misery will end, and a new bull market can begin.

The brief earnings rally is already petering as positive surprises from some high-profile companies are being offset by others. The hope of a corporate earnings soft landing is getting some cold water thrown on it.

Better-than-expected big bank earnings along with other earnings beats from notable companies like Netflix (NFLX), United Airlines Holdings (UAL) and Johnson & Johnson (JNJ) are being smothered by overall results. So far, overall results are below average for the quarter.

“Top-performing Cabot letters are pulling in their horns...”

As we await progress on negotiations, investors should consider the companies likely to feel the most impact of the tariff war, however it pans out.

Markets hit pause this week as third-quarter earnings begin rolling in, doubt reigns over chance of another stimulus bill, and uncertainty over the outcome of the presidential election just three weeks out is palpable. Overseas, the Stoxx Europe 600 fell 2.2% as local governments and local authorities hurried to impose lockdown restrictions to halt the spread of Covid-19 cases. This week’s new recommendation is a fintech stock offering an intriguing mix of Southeast Asian, American and European growth. Interestingly, it has a partnership with Sea Limited (SE) and perhaps can best be described as a young “Shopify of mobile”.

What a July! The S&P 500 moved 9.1% higher for the month, making it the best month since the first pandemic recovery month in 2020. It also closed up 12.6% from the low in June.
Is this a bear market rally or the beginning of something beautiful?

It’s been a furious rally so far this week. It’s only lunchtime on Tuesday. But I’ll take it.
September was an abysmal month, in a rotten third quarter, in an awful 2022. Investors can’t contend with persistent high inflation, a hawkish Fed, and a recession. The most recent selloff took just about every stock down with it.

The market has turned decidedly negative after last week’s worse-than-expected inflation report. This week, all eyes are on the Fed.

The Fed is widely expected to raise the benchmark Fed Funds by 0.75% for the third straight time. But some Wall Street types are worried that it could be a 1.00% hike. In the grand scheme of things that’s not a big difference. But Wall Street suffers from short-sightedness. And not the kind that can be corrected with glasses.

The market turned ugly again fast yesterday. It was the worst single-day selloff in years after reality crushed the pipedream that inflation is plunging and the Fed will stop being hawkish by early next year.

The headline inflation number came in at 8.3% for August versus an expected 8.1%. Although it was lower for the second straight month, after 8.5% in July and 9.1% in June, it was worse under the hood. CPI inflation was lower because of falling gas prices. Virtually everything else rose. Core inflation, which subtracts volatile food and energy prices, rose significantly from July to August.