S&P 500: A Bear Market Rally Or Have The Bulls Woken Up?

US inventory indices developed a robust rebound all final week. The spot index reached 4200, gaining greater than 10% from the lows of Might 20.

S&P 500 Index each day chart.

Is that this a short bear market rally, or have the markets bottomed out?. The state of affairs appears like touching bear market territory was a pink rag for the bulls, who’ve since turned aggressive. Elementary components at the moment are on the facet of the previous, whereas technical evaluation favours the latter situation.

Authorities within the USA and different developed economies are rising the tempo of financial coverage tightening, specializing in combating relatively than supporting financial development. We proceed to get bearish indicators from this attitude, because the economic system and markets have but to really feel the brunt of charges not seen in over ten years.

In the meantime, inflation and a slowdown in shopper demand as a result of excessive charges promise to eat into actual company earnings within the coming months. The tipping level in shopper exercise is unlikely to come back earlier than we hear from the Fed that there shall be no additional charge hikes.

The S&P 500 index has touched 61.8% of the rally from the lows of March 2020 to January 2022. We now have seen some rallies in a falling market in the course of the five-month decline. However thus far, touching the formal bear market space (20% decline from the height) within the S&P 500 has attracted consumers.

Furthermore, by the point the market touched the lows earlier this month, it was already oversold, however there have been additionally indicators of divergence between the RSI on the each day timeframes and the index degree. It is a clear indication that the promoting was not as fierce as earlier than.

The actual fact that the S&P 500 took a 7-week-long dropping streak, one of many longest in historical past, and has now proven a pointy rebound, is setting a constructive temper. The final time we noticed such a bullish awakening was in November 2020, after which the inventory market added for greater than a yr, despite the fact that there gave the impression to be no room for development.