When it comes to stock market performance, August was “the best of times, and the worst of times.”
The strong market rally that peaked in mid-August was viewed by many analysts as a transition from a bear to bull market. In our August 16th blog “Is the Worst Behind Us?” we concluded it was too soon to tell.
The market rebound began in earnest when Federal Reserve Chairman Powell suggested at the July Fed meeting that the trajectory of interest rate hikes could ease later in 2022.
Market participants translated his words to mean that the Fed would complete its aggressive rate hiking campaign to curtail inflation sooner than initially projected.
The second quarter earnings season also helped propel the market higher this summer in part due to the widespread pessimism ahead of results.
Companies delivered stronger earnings than initially estimated, with 75% of companies reporting earnings above estimates despite intense cost pressures and continued supply chain disruptions.
As the rally intensified in mid-August, a parade of Fed officials gave interviews during which they made it clear that the Fed’s work to manage inflation was nowhere near complete.
At the end of August, Powell made it abundantly clear that the Fed’s path towards restoring price stability “will likely require maintaining a restrictive policy stance for some time.” Not surprisingly, stocks ended with a profound sell-off.
As the market closed out August weaker and begins the historically weak month of September, questions about whether the bear market has truly ended linger.
September data releases and the upcoming Fed meeting on September 20-21 could help provide important answers. Chairman Powell has reminded us many times that the Fed will be data dependent in making policy decisions.
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