The current bear market did not officially start until just recently, but there were signs of it as far back as February 2021. That's when groups such as SPACs, biotechnology, and cannabis hit a top. For many months the indexes and a small group of big-cap technology names continued to trend higher while there was growing deterioration under the surface in small-caps and a variety of other sectors and groups.
The business media never even mentioned the possibility of a bear market until well into 2022, when the indexes finally started to crack. Now there is no denying that it is a bear market, but it took a very long time for general recognition of the fact.
We see a very similar situation right now with the economy.
Many folks in politics and the business media refuse to call this a recession, although the GDP now has two full quarters of negative growth. The argument being made is that a recession depends on intensity, length, and other factors.
The primary argument is that unemployment is still very low, so there can't be a recession at this time. In much the same way that we can't have a bear market if big caps and indexes are still holding up, we can't have a recession if employment is still in good shape.
The debate over the exact starting point of a bear market or a recession is not very helpful. It makes it easy for journalists to write headlines, but for investors, the important thing is to recognize trends at an early point. Those that saw the bear market that was developing in 2020 were better able to navigate it than those that are waiting for some arbitrary definition to be fulfilled.
We can debate whether this is a technical recession right now or not, but the important issue is the trend. We have economic weakness, and it is accelerating. We also have inflation, and it is still elevated. That is a recipe for stagflation, and that is what we are dealing with as we navigate the market today.
The pattern this year has been that the market gives back the pop that occurs on Fed decision day. We are seeing that again so far Thursday, but the indexes are still up nicely from the Tuesday close. FOMO seems to have fizzled out for now.
Don't forget that Apple (AAPL) reports Thursday night, and that should cause more contemplation over whether or not the market has already discounted the slowing economy or not.
