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With all three indices feeling the continued downward pressure from last week through this week, investors and experts are contemplating if the previous bull market has ended or if it is just taking a break. Yesterday, the tech heavyweights dragged on the market as a whole, and extended the current market slump. Last week’s mixed batch of inflation reports help take away any earnings reports momentum well into this week. Also contributing to this undertow is the current and now potential further downgrade in ratings of even more banks – including some of the bigger names.
Some key experts are citing the recent market tumble as a pause – that the retracement of the broad market since July 31 suggests a pause or a refresh, so to speak, has occurred – rather the end of the bull market. The current situation is also being referred to as a ‘trim’ rather than a haircut, and that such a retracement may be healthy, as opposed to signaling the end of the bull market that emerged from last year’s oversold market conditions.
Consumer Spending Influence
According to the U.S. Census Bureau, excess savings remains substantial, but has dropped significantly since the pandemic peak (from $2.2 trillion to $800 billion) which is delaying a deeper pullback in retail sales i.e. consumer discretionary income. So what does this mean for investors? Our outlook on retail spending trends is an overall bearishness as inflation should continue to have a negative impact on consumer spending (although we may see delays due to the still rather large amount of excess savings), as consumers will feel the increasing impact of lapsing fiscal stimulus more this year than last.
It makes sense that the current market is signaling more of a pause than a bull market closure. While earnings reports and inflation data have been muddying the waters, the 2022 dust is still settling and it appears that the likelihood for a soft landing is looking better. Keep one eye on conservative fixed income (continue taking advantage of the good rates) and the other eye towards the future as equities stabilize. All the while, keep your sights on your time horizon and be true to your tolerance levels. If you have any questions, please let us know.
Leading Trends • The S&P 500 Communication Services and S&P 500 Information Technology are the leading sectors year-to-date: up 39.4% and up 35.6% respectively.
Lagging Trends • The S&P 500 Utilities and S&P 500 Real Estate are the lagging sectors year-to-date: down 10.6% and down 1.9% respectively.
Indices are unmanaged and you cannot invest directly in an index. Source for data is Wells Fargo Investment Institute, Inc., a registered investment adviser and wholly-owned subsidiary of Wells Fargo Bank, N.A., and a bank affiliate of Wells Fargo & Company.