Traders were hopeful that a combination of oversold conditions and positive seasonality would create some upside action prior to the July 4 holiday. It finally occurred late on Friday and was limited, but it did help to relieve some of the intense negativity that had been building all week.
The headlines this weekend will be blaring the fact that the first half of 2022 produced the worst performance by the S&P 500 in 50 years. For many growth stocks and small caps, the action was even worse. We are now deep into a bear market and waiting for the cycle to unfold and eventually shift.
The biggest obstacle the market faces in the months ahead is that the Fed will continue to hike interest rates aggressively to fight inflation. Few economists believe that we will be unable to avoid a recession. The convergence of negative factors that are hitting the market is truly historic.
One of the most interesting developments this week was that interest rates fell and oil prices weakened. The primary reason for this is increased speculation that a recession is likely. Current projections now for the gross domestic product for the second quarter are for a drop of 2%, which would create two quarters in a row of lower GDP, which is the technical definition of the recession that is used by some economists.
There are plenty of obstacles out there as we head into the dog days of summer, but the good news is that action of this sort always leads to exceptional opportunities. It may not feel like the pressure will ever lift, but it will, and we will be well prepared to benefit, as many stocks that have been unfairly treated are eventually recognized by market forces.
Currently, the most important thing to keep in mind is that this is a bear market, and there are no indications yet that it is ending. Stay patient, and I guarantee that the cycle will eventually turn.
Have a great holiday. I will see you on Tuesday.
