Stocks remain above their 2022 lows, but many fear this bear market is far from over. Goldman Sachs last week warned that the two-month rebound off mid-June’s lows was likely a bear market rally, saying we have not yet seen a “decisive” low and that investors should expect more weakness and “bumpy” markets.
Amundi, Europe’s biggest money manager, is similarly pessimistic, saying it is “time to reduce equity exposure and become more defensive”. Strategists at Bank of America and Morgan Stanley are also in the bear camp.
The technical picture has certainly deteriorated over the past month. The S&P 500 has turned sharply lower after meeting resistance in the form of its 200-day moving average last month. Prior to bouncing last Wednesday, the MSCI All Country World Index had suffered eight consecutive daily declines.
Investors are finding no shortage of reasons for caution. The three main factors, says Compound Capital Advisors’ Charlie Bilello, are falling US earnings, increased recession odds, and hawkish Federal Reserve policy.
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Meanwhile, Morgan Stanley’s Lisa Shallett is concerned by US investors’ “apparent dismissal of global dynamics”, referring to China’s slowdown and Europe’s energy crisis. There is, she cautions, “more to this market than the Fed’s next move”. The European Central Bank reminded investors of this point last week, hiking rates by an unprecedented 0.75 of a percentage point. Markets haven’t been dull in 2022. That’s unlikely to change any time soon.
