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Is this a bear market rally or a new bull market?
Investment professionals are in the middle of a heated debate. Since mid-June, United States stock markets have moved higher, regaining about $7 trillion as many investors who had sold shares during the first half of the year began buying again, reported Lu Wang of Bloomberg. The debate is about whether the stock market is in the midst of a bear market rally or a new bull market.
A bull market occurs when share prices rise steadily over time. In a recent Morning Briefing on LinkedIn, Edward Yardeni of Yardeni Research, explained the debate:
“From a fundamental perspective, the bears expect that inflation will remain elevated, forcing the Fed to raise interest rates much higher, causing a severe recession. The bulls, like us, believe that inflation might have peaked in June and that the Fed is likely to pause for a while following one more rate hike of [0.50 to 0.75 percent] in late September. The bears see lots more downside for earnings and valuation multiples. We see flattening corporate earnings through the end of this year and believe that forward valuation multiples bottomed on June 16. In our bullish narrative, the market could move sideways for a while before moving to new record highs next year.”
Will Daniel of Fortune reported, “Morgan Stanley has repeatedly argued that the recent stock market rally is nothing but a bear market trap, while Bank of America has warned that stocks have more room to fall based on historical trends.”
In an effort to determine whether it is possible to distinguish bull markets from bear market rallies, one Minnesota research group examined data going back 65 years, reported Bloomberg. “The answer is that it remains next to impossible to say in real time which ones will last. Methods people claim work often fall apart when looked at rigorously.”
Last week, a pause in the rally added fuel to the debate. The Standard & Poor’s 500 Index declined after four weeks of gains, reported Ben Levisohn of Barron’s. U.S. Treasury yields moved higher as investors parsed Federal Reserve commentary, reported Samantha Subin and Natasha Turak of CNBC.
Data as of 8/19/22 1-Week Y-T-D 1-Year 3-Year 5-Year 10-YearStandard & Poor's 500 Index -1.2% -11.3% -4.0% 13.1% 11.7% 11.5%Dow Jones Global ex-U.S. Index -2.1 -17.7 -16.9 2.1 0.3 2.510-year Treasury Note (yield only) 3.0 N/A 1.2 1.6 2.2 1.8Gold (per ounce) -2.3 -3.8 -1.8 5.4 6.3 0.8Bloomberg Commodity Index -0.7 23.3 33.1 16.9 8.1 -1.6S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. Sources: Yahoo! Finance; MarketWatch; djindexes.com; U.S. Treasury; London Bullion Market Association. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
TAX BREAKS AND REBATES…The Inflation Reduction Act of 2022, which was recently signed into law, offers some financial incentives for households and businesses that are ready to begin transitioning to cleaner energy. Here are a few of the key tax breaks and rebates for individuals.
These credits could give the EV market a boost if consumers who were deterred by the higher cost of electric vehicles, reconsider the option. Consumer Reports recently found that “the latest generation of mainstream EVs typically cost less to own than similar gas-powered vehicles, a new development in the automotive marketplace with serious potential consumer benefits.”
The legislation also includes rebate programs, which will be administered by state governments, for consumers who cut home energy use by at least 20 percent.
Weekly Focus – Think About It
“I always want to say to people who want to be rich and famous: try being rich first. See if that doesn't cover most of it. There's not much downside to being rich, other than paying taxes and having your relatives ask you for money. But when you become famous, you end up with a 24-hour job.
—Bill Murray, actor
Michael W. Gray, Kerry L. Dyer, C. Travis Gray, CFP®, Jay E. Schaake, Nathan P. Graff, Katy McLeod
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* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.
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* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
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https://www.bloomberg.com/news/articles/2022-08-18/a-2-trillion-options-deadline-is-make-or-break-moment-for-bulls (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2022/08-22-22_Bloomberg_A%202%20Trillion%20Stock%20Options%20Deadline%20is%20Make-or-Break%20Moment%20for%20Bulls_1.pdf)
https://www.linkedin.com/pulse/young-bull-old-bear-edward-yardeni/https://finance.yahoo.com/quote/%5EGSPC?p=%5EGSPC (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2022/08-22-22_LinkedIn%20Aug%2017%20Morning%20Briefing_2.pdf)
https://www.bloomberg.com/news/articles/2022-08-17/how-to-tell-a-new-bull-from-a-bear-market-fakeout-toss-a-coin (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2022/08-22-22_Bloomberg_How%20to%20Tell%20a%20New%20Bull%20from%20a%20Bear%20Market%20Fakeout_4.pdf)
https://www.barrons.com/articles/stock-market-recession-economy-federal-reserve-51660955167?mod=hp_LEAD_1 (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2022/08-22-22_Barrons_The%20Stock%20Market%20Couldnt%20Handle%20the%20Uncertainty_5.pdf)
https://advocacy.consumerreports.org/wp-content/uploads/2020/10/EV-Ownership-Cost-Final-Report-1.pdf [Page 3]