As our analysts presumed last week, we were probably witnessing the “initial” phase of a long-term downtrend for Wall Street.
“It looks like the Fed is going to raise rates on Tuesday. We don’t see how they can do it without ruining the stock market,” said Jim Boykin, chief investment analyst at Investmentals.com, prior to last week’s interest rate meeting. He added, “I’m not sure how much lower the stock market can fall, but this hike might be the “initiation” of a long-term bear session.”
Of course, we can not yet be sure that the long-term market downtrend has begun, as this is only a preliminary correction in the markets. But signs do point to it.
DOW just joined S&P 500 in the club of bear markets. The S&P 500 Index has seen 26 bear markets since 1928. However, there have also been 27 bull markets, and over the long run, stock prices have increased tremendously. Bear markets, unlike a big reversal, are part of the normal cycle of the markets, but they can occasionally get much worse and, at times, turn into a reversal.
Crashes are uncommon, but they typically happen after a prolonged upward market trend. 2020 saw the most recent stock market crisis as COVID-19 expanded internationally. During the week of February 24, the Dow Jones and S&P 500 fell 11% and 12%, respectively.
2022, as we are witnessing, is undergoing a bear market and has been grating for Wall Street. Here is a graph that shows the S&P 500’s monthly chart.
When we say a long-term downtrend, we mean that the market will be declining for months and continue to fall significantly. It’s not surprising if the S&P 500, from here, could be setting its sights on 2177.62.
On September 13th morning, we saw a tumble in stock futures after CPI for August came in higher than anticipated. It was the worst day for the stock market in 2 years.
According to reports, monthly headline inflation rose by 0.1%. Core inflation rose 0.6% in a given month. The figures were undoubtedly disappointing. According to economists, core inflation would increase by 0.3% while headline inflation would decline by 0.1%.
Earlier today, Jim Boykin further stated, “For sure, the market was trying to say something. The investors realized that inflation, currently at 40-year highs, is not going to fall that easily. In September, the Fed was all set to increase rates for the third time in a row, and the bears got a stronger signal with the hotter-than-expected(not that hot) CPI report.”
If the S&P 500 remains in the 3637.46 to 4327.51 range for the next few months, a breakdown could potentially start a long-term downtrend.
