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The bear market blues: a diagnosis for our times
  + stars: | 2022-10-25 | by ( Alden Bentley | ) www.reuters.com   time to read: +5 min
John Schott MD, a portfolio manager at The Colony Group, retired psychiatrist and a recognized expert on market psychology, coined the term Bear Market Depressive Syndrome (BMDS) in his 1998 book "Mind Over Money." After prolonged bull markets, investors tend to go into denial during bear markets. MARKET RISK FACTORS ALMOST UNPRECEDENTEDThe S&P 500 (.SPX) was down more than 27% year-to-date in mid-October. "That essentially moves the market at a faster pace than you would have seen in previous periods of market weakness." Negative sentiment readings indicate the market is running out of sellers, and are thus considered a bullish signal.
All that, plus there's the fast-approaching midterm elections that hold plenty more implications for investors. Historically, stocks shoot higher after midterm elections. Basically, the market usually reacts to midterms well because they are predictable in the sense that politicians can't make radical legislative changes. Attention stock market investors: The Fed could keep rates elevated for up to a year. Goldman Sachs detailed how to invest in each stock-market sector to best protect your portfolio from inflation and higher interest rates.
Cyclical stocks have been outperforming the S&P 500, suggesting the market has hit a bottom, said Jim Paulsen, chief investment strategist at Leuthold. Cyclical stocks, sensitive to economic changes, have performed "surprisingly well" after the August pullback. "Unlike prior market declines this year, cyclical stocks have held up surprisingly well in the collapse that began in August." The large-cap S&P 500 has dropped by roughly 21% this year, and the small-cap Russell 2000 index has underperformed it only by about 1%. "Not only has the S&P 500 seemingly become more bear-resistant, but its underlying leadership indicates that a market bottom may have already been reached."
Share Share Article via Facebook Share Article via Twitter Share Article via LinkedIn Share Article via EmailWatch CNBC's full interview with Edward Jones' Mona Mahajan and Leuthold Group's Jim PaulseMona Mahajan, senior investment strategist at Edward Jones, and Jim Paulsen, chief investment strategist for Leuthold Group, join 'Squawk Box' to discuss whether equities are in a bear or bull market rally, what happens when recession fears surpass inflation fears, and more.
Share Share Article via Facebook Share Article via Twitter Share Article via LinkedIn Share Article via EmailEarnings are reinforcing the still-resilient consumer, says Edward Jones' MahajanMona Mahajan, senior investment strategist at Edward Jones, and Jim Paulsen, chief investment strategist for Leuthold Group, join 'Squawk Box' to discuss whether equities are in a bear or bull market rally, what happens when recession fears surpass inflation fears, and more.
The closely watched 10-year Treasury yield has been setting new 14-year highs, but strategists expect it to ease from those levels in a matter of weeks, relieving pressure on the stock market. The 2-year Treasury yield, for instance, rose to 4.54% — its highest since 2007. Bond strategists and technical analysts say there is some scope for the 10-year yield to reverse course. Higher yields pressure stocks for a couple of reasons. "If we continue to see strong hiring and a low unemployment rate that will keep rates higher ... the softer the landing the higher rates will be," said Jeffery.
The Fed's aggressive tightening is setting off more warnings about a recession and fallout for the stock market. Ahead of JPMorgan's quarterly report, CEO Jamie Dimon said the economy is on the verge of a recession, and the stock market could fall another 20%. But most importantly, it's Russia's war against Ukraine that is most unsettling to markets and poses a great risk. Meanwhile, billionaire hedge fund manager Paul Tudor Jones said a "recession playbook" could see stocks fall 10% further. PayPal stock fell after a botched roll-out of an acceptable use policy update that included big fines for the promotion of misinformation.
That is, the Fed will hike and hold, not hike and cut as many in the markets had been forecasting. The September CNBC Fed Survey shows the average respondent believes the Fed will hike 0.75 percentage point, or 75 basis points, at Wednesday's meeting, bringing the federal funds rate to 3.1%. The new peak rate forecast represents a nearly 40 basis-point increase from the July survey. Ryding sees a potential need for the Fed to hike as high as 5%, from the current range of 2.25%-2.5%. Respondents put the recession probability in the U.S. over the next 12 months at 52%, little changed from the July survey.
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