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What bear market?
Shares continued their summer season rally this previous week as better-than-expected inflation outcomes helped result in a 3.3% acquire within the
index, its fourth consecutive weekly advance. The impetus was excellent news on inflation: The U.S. shopper worth index was unchanged in July, in contrast with a consensus estimate of a 0.2% improve. Whereas the CPI continues to be up 8.5% prior to now yr, buyers are betting that inflation has peaked and might be operating at nearer to 4% by yr finish.
The S&P 500 now could be down a comparatively modest 10.2% for the yr, having recouped greater than 50% of its losses since its mid-June low. The index topped 4232 on Friday, a 50% retracement of the bear transfer, earlier than closing at 4280.15.
Dow Jones Industrial Common
is off simply 7%, helped by rallies in
(ticker: CVX) and defensive shares reminiscent of
continues to be down 16.6% in 2022 however has rallied greater than 20% from its June low, and speculative shares are stirring. A bellwether of such is Cathie Wooden’s
exchange-traded fund (ARKK), whose largest holdings embrace
(ROKU). The fund has risen about 40% since mid-June.
The large debate is whether or not the rally is over. Skeptics say that inflation isn’t contained, due partially to labor pressures, and that the Federal Reserve will proceed to raise short-term charges aggressively. The CME’s FedWatch instrument sees the important thing federal-funds fee peaking at 3.5% to three.75% by yr finish, up from 2.25% to 2.5% now.
Jim Paulsen, chief funding strategist on the Leuthold Group, instructed Barron’s a month in the past that “we might be setting ourselves up for a fairly good rally.” Again then, the S&P 500 was virtually 10% beneath present ranges. Reached this previous week, he stays upbeat. Paulsen was bullish in early July as a result of he thought the Fed would present restraint after its July fee hike. He now says the markets might be “on the point of a brand new easing cycle.”
Paulsen sees the Fed boosting charges for the remainder of the yr by lower than markets anticipate. He factors to such current accommodative components as a weaker greenback, decrease mortgage charges, and power within the junk-bond market. “As a inventory investor, do you wish to miss the beginning of a brand new easing cycle?” he asks.
Tom Lee, head of analysis at Fundstrat, is also bullish. He factors to the widespread skepticism concerning the rally and bullish technical components reminiscent of a rising ratio of advancing shares to decliners and the outperformance currently of small-cap shares.
For a lot of this yr, the consensus view relating to the November elections has been that the Republicans would make decisive positive factors within the Home of Representatives and take management of the chamber, whereas probably additionally profitable management of the Senate. However that state of affairs is wanting much less doubtless, in response to veteran political observer Greg Valliere, the chief U.S. coverage strategist at AGF Investments.
The Democrats are benefiting from decrease fuel costs and a potential peak in inflation, backlash from the Supreme Court docket’s abortion resolution, and a few weak Republican Senate candidates. Valliere wrote on Friday that almost all Washington political analysts had predicted a “wave election”—as in a tidal wave of wins for the GOP. He wasn’t amongst them, and added that “we now assume Democrats can cling on to the Senate, with Republicans narrowly regaining management of the Home.”
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