US stocks logged their best week in a month, driven by oversold conditions and optimism that the Fed will pivot away from higher interest rates by the end of the year.
For the week:
- The S&P 500 (SPY) gained 2.5% on the week and is currently up 9% from the short term low on June 17. The leading index is down 17% on the year.
- NASDAQ 100 (QQQ) rose 3.3% on the week and is up 11% from the short-term low in mid March. The tech-heavy index is down 25% on the year.
Take a look at the chart below – this is the S&P 500 and the NASDAQ in 2022. You can see the steady decline for most of the year and the recent turn higher.
*chart from tradingview.com
Why did the market bounce?
I see two reasons for the rebound.
Stocks are looking over sold: The S&P 500 was down as much as 24% on the year. The NASDAQ was down as much as 34%. History shows that bear markets have historically been a great time to buy and investors stepped into stocks this week to capitalize on lower prices. Take a look below at this great chart that shows how stocks perform after a weak first half of the year.
*Chart from bespokeinvest
Stocks anticipating Fed pivot: The Fed is expected to keep raising interest rates through the end of the year. After that the Fed is expected to tap the breaks and hold off on any further rate hikes. Markets are generally 3-6 months forward looking. That means markets are beginning to look past higher interest rates and that is good for stocks and bonds.
Here’s What to Expect Moving Forward
2022 has been a bumpy year for stocks and bonds. I am expecting volatility to remain elevated in the short run. However, it looks like markets are beginning to stabilize. It’s very possible the US stock market has bottomed out. If not, stocks still look close to the bottom of this move.
What is the Plan Moving Forward?
Despite the rebound last week this still looks like a good time to buy stocks. The S&P 500 is still down 17% on the year and markets are showing more signs of stability. My plan is to continue deploying cash into the market to capitalize on lower prices in stocks and bonds.
I’ll be back with another update next week, everyone have a nice day.
Disclaimer: This report is for entertainment purposes only. Every investor should consult with an investment advisor before making investment decisions. The Vodicka Group, Inc. is not a broker/dealer. We do not receive compensation for mentioning stocks. At various times, the clients, publishers and employees of Vodicka Group, Inc., may buy or sell the securities discussed for purposes of investment or trading. Author Michael Vodicka owns shares of the S&P 500 (IVV) and NASDAQ 100 (QQQ).
