Palisades Gold Radio: The Worst Part of the Bear Market Is Dead Ahead
A bear market is a process. Just as stocks don’t rally in a straight line, they also don’t fall in a straight line. Investors saw a big move down between December of last year and into June, before a strong rally kicked off.
Now, stocks are trending down again. And we’re seeing signs of the economy continuing to slow, even as inflation remains high and the jobs market remains strong.
Once that starts to change, however, things could move quickly. And markets could move lower as the economy shows an even further drop ahead.
The opening move of this market drop has simply been a drop in prices from 2021’s elevated levels. Now, companies are seeing lower earnings estimates as the economy has started to slow. Traders who follow a stock’s price-to-earnings, or PE, ratio know that the P has already dropped. Now the E part of the equation will drop too.
That means that equities are likely still priced too high to their lower earnings estimates, and markets will drop further. And we’ll likely see the Fed continue to raise interest rates into next year.
Given how inverted the yield curve is at the moment, a steep recession and change in policy looks likely. But not until another leg lower for stocks.