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The very first half of 2022 was the worst very first half of the year for the S&P in more than 50 years. Given that the start of the 2nd half of the year, the market has actually started to rebound. The S&P 500 is up 13% from its June lows, and the NASDAQ is up near 20% from its lows, and near to the hypothetical limit for a new booming market.
When we see this rally, our primary concern is: are we taking a look at a new bull market or is this a bear market rally? In other words, have we reached the bottom yet and are on our way up, or is the marketplace seeing a little rally before another plunge?
To address this question, let’s understand what is driving this rally.
Capitulated investor sentiment: The ramification is that the marketplace has reached its bottom as the cost has been driven down by investors selling stocks without the hope of regaining their losses. Therefore, the market is ripe for a rally.
Q2 profits exceeded expectations: Many financiers were worried that as stocks plummeted, this decline would also be shown in their profits report. However, the reports were not almost as bad as lots of feared.
Investors are wishing for an inflation decrease and an end to the Fed hiking rates of interest by the end of the year.
As the marketplace rallies, the United States Federal Reserve is concerned that this is happening prematurely, before the essential financial goals have been achieved.
Is this the one?
Bear rallies take place frequently, and this has actually undoubtedly been a big one. Compared to the three previous significant crashes in 2007, 2000, and 1973, two things stick out:.
The large number of bear rallies which generally happen before the one that is sustainable shows up and begins the next booming market. We are currently in the 4th rally, and some healings require 11.
The plus size of this 13% rally versus the 8% typical bear market rally. History suggests that we may have more incorrect dawns ahead, and the size of this rally, though big, is not unprecedented.
Inflation must boil down.
To reach the sustainable rally that will lead to the next booming market, we require to see a sustained decline in inflation. Our company believe we are close to this inflation peak, with commodity costs falling, supply chains loosening, and the labour market starting to damage. Despite these signals, we will require to see concrete data that inflation is boiling down, which still may not convince the Fed that it is time to halt rate of interest hikes.
The main ETF to mention here is ARKK. It sprung into the spotlight in 2020, with its disruptive investments managed by Cathie Wood. In 2020, ARKK acquired around 148% after buying stocks such as Tesla and Square. Ark Invest now manages around 10 various ETFs, providing direct exposure to various sectors of the marketplace, with the main focus on tech.
” ARKK (ARK Innovation ETF) is greatly weighted towards health care and infotech possessions. The ETF provides exposure to a variety of sectors, enabling you to increase the variety of your portfolio.
” After such a strong year in 2020, ARKK has actually felt the full impact of the tech sell-off, falling around 12% this year.”.
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We stay optimistic that we may have seen the bear market reach its bottom but at the same time careful about the existing rally being the sustainable recovery that will result in the next bull market. For that to take place, inflation still requires to come down.