Meet Kevin: A Massive, Sudden Market U-Turn

The stock market may be down for the year, but that move hasn’t occurred in a straight line. There have been some powerful rallies that have lasted for weeks, before the downtrend has resumed.

With some strong performance in recent weeks, many are starting to expect another downturn. With inflation high, interest rates still rising, and with corporate earnings starting to show a slowdown, it’s easy to see why markets may fall. The question is only by how much.

The Fed’s rapid interest rate hikes this year will likely lead to a sizeable drop. One investment bank has come out to say that the Fed has been “in a hurry.” Rates have risen so far, so fast, that mortgage rates have more than doubled in a year.

And as rates have risen, so have bond yields. As yields have risen, stock multiples have historically cut back. So as long as rates are going up, it’s likely there’s more pressure on stocks.

Investors should also be mindful of seasonal trends. For the months May through October, on average, the S&P 500 has delivered no real returns in the past 60 years. Nearly all of the cumulative returns in stocks occurs between November and April.

With the market about to enter into a period of seasonal strength on average, investors may expect the bear market to end in a U-turn. But with interest rates still rising, that trend may be broken.

To view the full analysis, including the fully bearish analysis, click here.