The S&P 500 has rebounded over 4% from its 2022 lows. But from a technical perspective, it is far too early to call the bottom. For this we need to see a huge improvement in the percentage of stocks trading above their 200-day averages. Unfortunately for investors seeking to call the bottom, that takes time. Price tends to run away from investors at a bottom, and often you will hear investors say that they will wait for the next pullback that never comes. The market does not let you in but rather just locks the door. News flow at the bottom tends to be terrible and those waiting for the all-clear sign on headlines will likely be disappointed as the market discounts better news in the future. Bad news is bought, which can be confusing to many – especially those that have not been through numerous bull/bear cycles. Generally, stock market lows are found when some type of bottom formation is seen, and the bullish breakout coincides with the break of the bear-market trendline. Quite simply, it’s a succession of higher highs and higher lows.

April was a brutal month for the stock market, with blue-chips suffering their worst month since March 2020, while the Nasdaq had its worst month since October 2008 when the ‘great recession’ was taking hold. Purely from an investment perspective, the drop has had the benefit of washing away significant portions of the over-valuation in stocks that existed at year-end. Indeed, the combination of continued earnings strength and a correcting market have helped ease concerns about stock-market valuations. At some point, bulls will wade back into the carnage in search of favourable entry points for stocks that investors loved when they were pricey and hate now that they are cheap.

With stock markets already on edge, thanks to ongoing inflationary pressures and the impact of rising interest rates, the war in Ukraine has sent the markets into freefall. Running away at the first sign of difficult times, however, is not a good move. Shares have historically delivered a better return than cash in the bank and they tend to recover quickly during times of turmoil. Even though remaining invested can be uncomfortable, it’s important for investors to hold their nerve and wait out the market volatility. Just ask those who sat tight through the Covid sell-off in February 2020, global financial crisis in 2008, and countless other black swan events. Investing is all about patience and eventually the rewards will come.

We wish all our clients and readers a very Happy New Year. The year 2021 was a good one for stocks, fuelled by reopening optimism, strong corporate earnings growth, and medical breakthroughs. Much of the market’s momentum was recorded in the first half, before multiple challenges set in. These included inflation shocks beginning in late spring, a supply-chain crisis that impacted every industry by mid-summer, and rising interest rates as the year wound down. The year 2022 opens with many of these challenges still in place, and the stock market certainly faces a more-difficult path than was the case in 2021.

Inflation remains the number-one topic in the stock market. Goods scarcity is impacting every industry, and the price of everything is higher. Yet despite this, corporate earnings remain solid. Earnings grew over 50% in Q1 and over 80% in Q2; the first-quarter comp was against a COVID-impacted Q1 2020, while the second quarter compared against the economic lockdown quarter of Q2 2020. The comp for the third quarter will not be as easy as the first-half 2020 comparisons. Nonetheless, earnings released so far are up more than 30% year-over-year and companies are beating expectations by a wider-than-average margin. That bodes well for supporting an already-high stock market valuation.