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Bear market is here, now what?

A bear market is here and investors are worried. What could happen next and what should they do? This week in the LPL Market Signals podcast, Jeff Buchbinder and Ryan Detrick discuss the bear market, the latest on inflation, and what the Federal Reserve could do at their next meeting.

Inflation picture worsens: When will we get a break?

Inflation data continues to run hotter than most economists expect, and Friday was another bad day as consumer prices rose more than expected. With many economists looking for signs of an inflation peak, it led to higher rates, worries over a more aggressive Fed, and a huge drop for stocks. Jeff notes this is disappointing, but the likelihood that inflation still peaks over the coming months is strong. Not to mention we could be getting some good news on the Ukraine front, which is a true wild card. Ryan adds that used cars, fertilizer, and shipping costs have dropped, showing potential light at the end of the tunnel.

Bear market has arrived: Is the worst over?

Adding to the inflation theme, the S&P 500 Index officially moved to a bear market earlier this week. The fears are well known with inflation, a slowing economy, and an aggressive Fed right at the top of the list. As poor as things have been, there is some good news though. Looking at previous bear markets, if there is no recession stocks tend to bottom near current levels. Additionally, the year after stocks go into a bear market (so starting on Monday) has seen stocks up a median of nearly 24% a year later. By no means are things perfect, but with expectations so very low, any good news could spark a nice rally.

Fed preview: Behind the 8-ball

This time a week ago there was only a small chance of a 75 basis point hike from the Fed at the upcoming meeting. Well today it is baked in. The jump in rates and expected Fed hikes so far this year has been unlike anything we’ve ever seen, but stubbornly high 40-year highs in inflation will do that. The strategists agreed that 75 basis points is likely baked in the next two meetings now, and at the end of the day, we need to see some improvement in inflation to see these expectations come back to earth. 

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Listen to the entire podcast to get the LPL strategists’ views and insights on current market trends in the U.S. and global economies. To listen to previous podcasts go to Market Signals podcast. You can subscribe to Market Signals on iTunes, Google Podcasts, or Spotify and find us on the LPL Research YouTube channel.

 

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth in the podcast may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. All indexes are unmanaged and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Stock investing includes risks, including fluctuating prices and loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

The Standard and Poor's 500, or simply the S&P 500, is a stock market index tracking the performance of 500 large companies listed on stock exchanges in the United States.

The Bloomberg U.S. Aggregate Bond Index, or the Agg, is a broad base, market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the United States.

All index data is from FactSet.

The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

Core CPI is a subset of the total Consumer Price Index (CPI) that excludes the highly volatile food and energy prices. It is released by the Bureau of Labor Statistics around the middle of each month. Compare to Personal Consumption Expenditures (PCE); Core PPI; Producer Price Index (PPI).

Personal consumption expenditures (PCE) is a measure of price changes in consumer goods and services released monthly by the Bureau of Economic Analysis (BEA). Personal consumption expenditures consist of the actual and imputed expenditures of households; the measure includes data pertaining to durables, nondurables, and services. It is essentially a measure of goods and services targeted toward individuals and consumed by individuals.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This Research material was prepared by LPL Financial, LLC. 

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