Several Wall Street experts are warning that despite moving higher in recent weeks, the stock market still has further to fall—with recent gains likely to be nothing more than a “bear market rally,” as investor concerns about Fed rate hikes and slowing economic growth continue to weigh on markets.
Despite an earnings season marked by profit warnings from major companies, the stock market has risen significantly from its low point on June 16, with the S&P 500 gaining roughly 12% and rallying for the last three weeks in a row.
With stocks starting to recover from a brutal selloff in the first half of the year, investors are now debating whether recent gains are merely a bear market rally—with stocks set to hit new lows—or the start of a new bull market.
Analysts at Bank of America argue that it’s “premature to declare a ‘big low’ in the market,” predicting more downside ahead and advising investors to remain “tactically cautious,” especially as the Federal Reserve continues to hike interest rates for the foreseeable future .
The firm describes that many traditional indicators of a market bottom are yet to be triggered—such as rising unemployment, the Federal Reserve starting to lower interest rates, a slowdown in profit estimates and a decline in the 2-year Treasury yield.
What’s more, the last three market lows occurred after investors began to sell stocks, which hasn’t happened just yet: Since the end of June, clients have been net buyers of equities rather than sellers, according to Bank of America.
The unexpectedly strong jobs report last Friday, which investors worry will embolden the Fed to continue aggressively raising rates, also signals that the “recent bear market rally” will soon come to an end, according to LPL chief global strategist Quincy Krosby.