After Closing Lower Last Week, Stocks Will Try To Bounce Back This Week Image: Bigstock Stocks were closed yesterday for Juneteenth. But trading resumes today. As you know, stocks finished lower last week, with the S&P logging their worst week since March 2020 when the pandemic was just getting started. Last Wednesday, the Fed raised interest rates by 75 basis points. They also forecast three more 50 basis point hikes and one 25 basis point hike by year's end, which would put the Fed Funds rate at 3.4%. (And they left the door open for another 75 basis point hike in July rather than 50.) The more aggressive stance was cheered on Wednesday as it signaled the Fed was finally getting serious about combatting inflation after dragging their feet. But the next day on Thursday, stocks tanked on worries that the higher rates could very well tip the economy into a recession. With inflation at a 41-year high, the Fed needs to get aggressive. But it comes at a precarious time as the economy is already slowing. Whether we fall into a recession or not remains to be seen. But the Fed is still forecasting growth. And they are expecting GDP to come in at 1.7% this year, and 1.7% again for 2023. Although, the market seems to be discounting that forecast. At least for the moment. As I mentioned last week, stocks are extremely oversold as the market seems to be pricing in the worst. But there's plenty of positives in the economy right now that have been virtually ignored during this sell-off. And eventually, the market will have to take notice. In the meantime, stock valuations are at multi-year lows. And that means there are some great bargains out there. It's also worth noting that, with the S&P officially entering a bear market last week, it's important to remember that the median return once a bear market has begun is nearly 3% one month later, more than 5% three months later, and more than 23% a year later. So for those rushing to get out, just remember the above stats. It should also be known that the faster a bear market begins, the shallower it tends to be. And the rallies that follow after a bear market has ended are even bigger. It's also important to remember that a large part of any bull market recovery typically comes at the very beginning. So keep your eyes on the big picture. See you tomorrow, Kevin Matras Executive Vice President, Zacks Investment Research |
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