Dear Reader,
It seems to be a bear market.
Historically, bear markets have come with some pain. According to Howard Silverblatt of S&P Dow Jones Indices, the average bear market has lasted 18.6 months and has seen the S&P 500 fall 38.3% before bottoming.
The ones that came with economic recessions tended to be worse.
Though, it's not crazy to think this could be a bear market without a recession.
While the stock market is likely to generate healthy returns, in the long run, there's good reason for investors to manage expectations in the short run as the Federal Reserve gets increasingly aggressive with monetary policy.
The stock market's recent sharp declines came in the wake of the May consumer price index report, which was much hotter than expected.
The news intensified worries about inflation persisting and renewed calls for a more hawkish Federal Reserve.And the hits kept coming.
The New York Fed's May Survey of Consumer Expectations confirmed that the inflation we've been experiencing today has folks increasingly convinced that inflation will likely remain elevated down the road.
None of these metrics reflect sudden and sharp deteriorations, as they've been trending unfavorably for months.
The current issue is that they continue to show little or no improvement despite months of tighter monetary policy from the Fed.
This is why the Fed unleashed a very aggressive 75 basis point interest rate hike, the most significant rate hike since 1994.
"We have to restore price stability," Fed chairman Jerome Powell.
In the short term, it appears that we may need to take a defensive stance.
As the market beatings will continue until inflation improves.
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