September 7, 2022
Good morning,
In S&P 500 Index terms, in round numbers, the market fell 24% from its all-time high in January of this year to its recent low in June. There were two relief rallies during that six-month period that failed to arrest the selling that resulted in the worst first half of a year for stocks since 1970. In mid-June, a third rally began for probably a multitude of reasons, not the least of which was some hope that the Fed would possibly be able to cut rates in 2023 and avert a recession. The June rally peaked in August, up almost 18%, as the Fed used every communication channel in its tool box to clarify that they would continue to tighten monetary policy to combat inflation, even if it means more pain for consumers and businesses. This hawkish tone rekindled fears of the “R” word: recession.
Today, about half of the June – August rally has been retraced – another “R” word. Continued hiking in the face of a slowing economy not only raises the odds of a recession, but it also raises the prospects of a third “R” word: retest. It may be that the worst month of the year for stocks historically and a relentlessly hawkish messaging Fed may have flung open the window for a retest in the first few weeks of fall ahead. See you Thursday.
Be well,
Mike