The stock market fell sharply last week as the federal reserve raised interest rates by 0.75%, securing the S&P 500 and other major indexes in bear market territory.
This current downturn and gloomy market sentiment has been with us all year, so when will this market bottom out? No one can say definitively. Typical bear markets last 6 - 12 months, but they can last 24 months or longer. Right now we are approximately 6 months into this bear market and it may continue through the remainder of the year.
Generally, investor sentiment is lowest at the very bottom of the market and even several months into the subsequent rally. Investor sentiment will remain negative even after the market bottoms because, at the time, investors won’t know it’s the bottom and usually economic conditions on main street remain dour for several months after.
What are some catalysts that could end this current bear market?
- Once the Fed has a handle on inflation and it begins trending downward, there is a good chance the market will rebound.
- A resolution to the conflict and war in Ukraine will stabilize the world emotionally, economically, and politically.
- COVID disruptions will remain with the world for years, but they will most likely continue to lessen, and their impact will diminish.
It’s important to remember that a stock market bear market and an economic recession are two different events. One piece of good news is the bear market will often bottom months before the economic recession reaches its low point.
Photograph by: Artur Aldyrkhanov on Unsplash