Has the U.S. Stock Market Bottomed in 2022?

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  • Following the S&P 500′s strong performance last week, some investors are wondering if the worst of this year’s cold streak is past.
  • Many analysts see last week’s jump as a relative rebound from the rest of the month’s horrible performance.
  • With more interest rate hikes on the way, it’s difficult to state whether the stock market has truly bottomed out.
stock market bottom - Has the U.S. Stock Market Bottomed in 2022?

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The S&P 500’s surprisingly strong performance last week has some investors considering if stocks are past their low point this year. Reasonably so, as the S&P and Nasdaq Composite have shed more than 20% of their value just six months into the year. So, has the stock market bottomed out?

According to some investors, it’s unlikely that last week’s roughly 4% jump is anything more than a temporary reprieve from this year’s bear market. In the face of decades-high inflation, rising interest rates and global supply chain slowdowns, the stock market has taken a not-so-subtle dive into the red. While last week’s reversal was a pleasant surprise to investors, it is not a reflection of changing market conditions.

In fact, as per historical precedent, it’s unlikely for stocks to truly make a comeback until the Federal Reserve eases off its hawkish agenda. The S&P has lost 15% or more of its value 17 times through its history. On 11 of these occasions, the stock market only truly began its shift back to the green after the central bank initiated more expansionary monetary policy. This includes lowering interest rates, buying bonds — basically the opposite of the Fed’s current endeavors.

In its July meeting, the Fed is anticipated to levy another 75 basis-point rate hike. This will only put additional strain on equity markets, as it makes it more difficult and expensive for companies to secure funding via debt.

Unfortunately, this likely means the stock market has more room to fall than some may hope.

When Will the Stock Market Bottom Out?

Despite the S&P’s drop so far this year, the cold streak may not have reached its fever pitch. While last week’s roughly 4% jump came as a positive sign to investors, it also reads as a “buy-the-dip” opportunity after a miserable month for stocks. Indeed, from June 1 to June 16, the S&P lost more than 10% of its value. It’s not exactly uncommon to see investors take advantage of the relative trough by buying back previously sold stocks.

The Fed is likely to continue tightening the markets with more interest rates hikes through the rest of the year. The rising cost of debt may well impact corporate earnings, which have been relatively unaffected so far this year. In Q1, 417 S&P 500 companies mentioned inflation in their earnings reports, the highest figure since 2010. Many businesses have already projected weaker-than-expected earnings in upcoming quarters. Weak profit growth may hammer away at stocks even more than startling macroeconomic conditions.

Investors will be closely watching the monthly Consumer Price Index (CPI) reports for signs that prices are easing. May’s CPI report detailed an 8.6% year-over-year jump in prices, the fastest rise since 1981. It’s a startling sign for investors, especially following the Fed’s first few rounds of rate hikes. The next few quarters will be telling for stocks as investors discover if current valuations are realistic.

Either way, it’s too early to declare a bottom-out point for a cold streak that may have only just begun.

On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.


Article printed from InvestorPlace Media, https://investorplace.com/2022/06/has-the-u-s-stock-market-bottomed-in-2022/.

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