Weekly Market Commentary August 25th, 2022

The Markets

Investment professionals are in the middle of a heated debate. Since mid-June, U.S. stock markets have moved higher, regaining about $7 trillion as many investors who had sold shares during the first half of the year began buying again, reported Lu Wang of Bloomberg. North of the border, the S&P/TSX Composite has also been on an upward trajectory since mid-July. The current debate is about whether the stock market is in the midst of a bear market rally or a new bull market. 

A bull market occurs when share prices rise steadily over time. In a recent Morning Briefing on LinkedIn, Edward Yardeni of Yardeni Research, explained the debate: 

“From a fundamental perspective, the bears expect that inflation will remain elevated, forcing the Fed (U.S. central bank) to raise interest rates much higher, causing a severe recession. The bulls […] believe that inflation might have peaked in June and that the Fed is likely to pause for a while following one more rate hike [of 0.50 to 0.75 percent] in late September. The bears see lots more downside for earnings and valuation multiples. “

Will Daniel of Fortune reported, “Morgan Stanley has repeatedly argued that the recent stock market rally is nothing but a bear market trap, while Bank of America has warned that stocks have more room to fall based on historical trends.”

In an effort to determine whether it is possible to distinguish bull markets from bear market rallies, one Minnesota research group examined data going back 65 years, reported Bloomberg. “The answer is that it remains next to impossible to say in real time which ones will last. Methods people claim work often fall apart when looked at rigorously.”

Last week, a pause in the rally added fuel to the debate. The S&P 500 index declined after four weeks of gains, while north of the border, the S&P/TSX Composite index ended the week more-or-less flat. In the fixed income markets, U.S. Treasury and Government of Canada bond yields both moved higher.

If you have any questions or concerns about your investment portfolio or recent market events, please don’t hesitate to give us a call.

Weekly Focus – Think About It

“I always want to say to people who want to be rich and famous: try being rich first. See if that doesn't cover most of it. There's not much downside to being rich, other than paying taxes and having your relatives ask you for money. But when you become famous, you end up with a 24-hour job.”

–Bill Murray, actor

Best regards,

P.S. Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added.