After last week’s meltdown that erased nearly $2 trillion from the S&P 500, the US equities rebounded on Tuesday, the first day of the trading week as Monday markets were closed on account of Juneteenth.
On June 21, the S&P 500 added 2.4%, led by energy and consumer discretionary stocks, while the Nasdaq 100 jumped 2.5% after the long weekend. Revlon Inc. Gained 62% in the wake of its Chapter 11 bankruptcy filing while Kellogg Co. was up 2.0% after plans to separate into three companies.
But such bear market rallies may continue until a clear picture on inflation and US economy growth emerges. US stock futures were lower on Wednesday with Nasdaq futures down by almost 1.70 per cent. In todays testimony to Congress Powell said American economy is very strong and well positioned to handle tighter monetary policy. Fed Chair Jerome Powell delivers the US House testimony on Thursday. The US initial jobless claims data comes on Thursday.
The US market has come a long way since the meme stock frenzy witnessed in early 2021. Shares of GameStop Corp. and AMC Entertainment Holdings Inc., were the traders favourite and the Wall Street investors were minting money in those stocks.
Today, the markets are in altogether different zones with the benchmark S&P 500 index shedding more than 20% and the tech-heavy Nasdaq 100 dropping nearly 30% this year. The US stock market is in a grip of bears.
Rising inflation leading to rate hike and more rake hike that may push the economy into recession is what most investors are expecting. The US Fed’s aggressive monetary tightening to tame inflation, and the risk of recession, continue to unsettle investors.
After unexpectedly accelerating to a fresh 40-year high in May 2022, US consumer price growth is seen slowing, with a Bloomberg survey of economists predicting 6.5% by the fourth quarter and to 3.5% by the middle of next year.
The only silver lining that may end the bear market scenario in quick time is the corporate earnings. Analysts currently expect S&P 500 Index earnings to rise by 10.5% this year and 9.3% in 2023, according to consensus estimates compiled by Bloomberg Intelligence. Amidst the growth-inflation trade off, the investors are getting mixed signals making them unable to take a robust call.