Equity Week Ahead: Why There’s No Need To Fear A Bear Market

Why? Volatility is normal. And market corrections, defined as a 10% pullback from a recent high, are healthy and common events in any bull market.

The Dow and S&P 500 briefly dipped into a correction late last month before bouncing back. They are now within 5% to 7% of their records. The Nasdaq, which is teeming with technology companies, remains in a correction. That’s about 14% below its peak.
Investors are undoubtedly on edge. the VIX (VIX), a measure of market volatility, has risen more than 50% this year. And the CNN Business Fear & Greed Index, which examines the VIX and six other indicators of market sentiment, shows signs of fear on Wall Street.

But a correction doesn’t necessarily mean an even worse pullback is ahead. Few analysts are predicting a long and painful bear market ahead. This is when stocks fall more than 20% from recent highs.

“Corrections are a temporary setback to a long-term investment strategy, and about half of all corrections since 1966 have resolved within five months,” said James Solloway, chief market strategist at the SEI’s investment management unit, in a report last month. .

Solloway added that higher volatility does not mean there is “a high probability that we are heading into a bear market or a recession in the near future.”

“Ups and downs are an integral part of the investment cycle,” he noted.

Even a portfolio manager who manages a fund hedged against the big swings in stock markets isn’t expecting a big drop anytime soon.

“It’s a normal setback,” said Dan Cupkovic, director of the Amplify BlackSwan’s growth and cash flow (SWAN) exchange-traded fund.

Central banks have baffled investors by signaling in recent weeks that they may raise interest rates more aggressively than expected to curb rising inflation. But Cupkovic said he expects inflation to cool as the year progresses.

There should be “easy money for the next few years,” he said.

Cupkovic also dismissed the argument that a bear market is overdue. That’s because there was one two years ago, when stocks fell in March 2020 as the Covid-19 pandemic hit the US economy. Prior to that, stocks were skyrocketing.

“It’s been so sweet for investors. Stocks went up. There was more complacency,” he said. It’s no longer the case now. The VIX is more than 60% above where it was trading at the end of 2019.

Oil stocks are the new FAANG?

One of the reasons stocks have stumbled in 2022 is the underperformance of Big Tech stocks. Weak results and guidance from Facebook owner Meta Platforms toppled the FAANGs last week.
Meta (Facebook) stocks have plunged more than 30% this year. So are the shares of netflix (NFLX). Amazon (AMZN) is still down about 7% despite a sharp rise in stocks on Friday after posting strong results. Microsoft (MSFT) is down about 10% and You’re here (TSLA) fell nearly 15%. Apple (AAPL) and owner of Google Alphabet (GOOGL) fared better thanks to strong earnings.
But even as the technology struggles, investors are flocking to energy stocks. the Energy Select Sector SPDR (XLE) The ETF is up almost 25% this year as crude oil prices soar.
Chevron (CLC) leads the Dow Jones with a 15% gain while Exxon Mobil (XOM) is up more than 30%. Halliburton (HAL), Schlumberger (SLB), western oil (OXY), Hesse (IT IS) and PAA (PAA) are among the top earners of the S&P 500.
Rising oil and gas prices are not good for consumers. But investors are happy to see rising energy costs because it means more profits for the oil giants.

Along these lines, Exxon analysts have raised their 2022 earnings forecast by 16% in the past three months and raised their 2023 earnings targets by 20%.

“We are seeing this sector rotation into energy,” said Tony Minopoli, chief investment officer at Knights of Columbus Asset Advisors. “Stocks will follow earnings.”

Following

Monday: Earnings of Tyson Foods (TSN), Hasbro (AT), Amgen (AMGN) and take two (TWO)
Tuesday: Earnings of BP (BP), Pfizer (DFP), Sysco (SYY), Du Pont (not a word), Harley-Davidson (PORK), Chipotle (GCM) and Platoon (PTON)
Wednesday: Earnings of Honda (HMC), SVC (SVC), Fox (FOXA), Yum Brands (YUM), Pepsi (DYNAMISM), disney (SAY), Uber (UBER), MGM (MGM) and Mattel (CARPET)
Thusday: consumer prices in the United States; weekly jobless claims in the United States; Earnings of Coca Cola (KO), Kellogg (K), Twitter (TWTR), Zillow (Z), Expedia (EXPE)Affirm and Yelp (YAP)
Friday: UK GDP; US consumer sentiment; Earnings of Good year (GT) and under protection (AU)

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