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Living with a Bear (Market)
A bear market is declared when the market declines over 20% from its previous high-water mark. Because markets go up and down all the time, labels like bear and bull may seem arbitrary. But a decline of one fifth is meaningful, whatever you call it.
We are currently in a bear market. According to S&P Global Dow Jones Indices, on Monday, June 13 the S&P 500®, lost more than 20% of its value compared to its previous peak of 4,796.56 on January 3. The market continued to track downward for a few more days, until reaching a low of 3,666.77 on June 16, before rebounding slightly. A bull market will be declared again when the S&P 500® exceeds its January 3 high.
At the current time, it is impossible to say how long this bear market will last although it may be useful to compare it to previous bear markets. The bear markets associated with the collapse of the Technology Bubble (2000-2002) and the Global Financial Crisis (2008) lasted significantly longer than this current bear market cycle has lasted thus far.
Market observers have offered a variety of possible reasons for the emergence of a bear market—monetary tightening, the threat of recession, energy security, geopolitical uncertainty, new variants of COVID-19—but most seem to consider inflation to be the primary culprit.
“At this point, inflation is being placed squarely as the fall guy for the market declines, as the market’s ‘expert’ historians cite the Fed’s ‘excess’ stimulus programs as the reason for the 40-year high inflation rate,” Howard Silverblatt of S&P Global Dow Jones Indices wrote in a commentary on July 5.
If inflation is to blame for the bear market, there may be better days on the horizon. A recent analysis compiled for JPMorgan by S&P Global Market Intelligence, signaled that consumer price inflation may cool over the next few months as supply chain problems ease and demand falters.
For now, inflation remains a pressing concern. The Fed and other central banks are fighting perceptions that they moved too slowly in tackling inflation. Further interest rate increases are believed to be coming and there is a growing perception in the markets that a soft landing is unlikely. In a worst case scenario, stagflation—marked by both high unemployment and high inflation—could develop.
Whether stagflation develops or inflation eases, it is unlikely the bear market will end any time soon. For now, markets may content themselves with wistful nostalgia for the glory days of early January 2022.
Today is Tuesday, July 26, 2022, and here is today’s essential intelligence.
Written by Nathan Hunt.
Economy
A Global Recession Can Be Avoided, But Risks Are High
Entering 2022, the global economy was headed for a major slowdown. As inflation raged, central banks accelerated the pace of monetary policy tightening, aiming to slow the growth of aggregate demand and calm price pressures. Two shocks intervened—Russia's invasion of Ukraine on February 24 and lockdowns in mainland China in response to a March-April surge in COVID-19 cases. These shocks further disrupted supply chains, adding to cost pressures.
—Read the article from S&P Global Market Intelligence
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Capital Markets
APAC Finance Sector M&A To Slow Further As Buyers Grow Cautious Of Large Bets
Finance sector M&A in Asia-Pacific will slow further after the total deal count fell in the quarter ended June 30, as market uncertainties force buyers to become more cautious and selective. Finance sector M&A deals in the quarter fell to 154 from 165 in the prior-year period, dragged by a slowdown in activity in the banking and nonbanking financial institution sectors, S&P Global Market Intelligence data shows. The ongoing war in Ukraine, rising inflation, interest rate hikes, and a bearish market environment will weigh on investors' appetite for deal making.
—Read the article from S&P Global Market Intelligence
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Global Trade
India Reliance's Oil Revenues Hit Record Highs Amid Trade Flow Shift, Geopolitical Tensions
The oil-to-chemicals division of Reliance Industries Ltd saw its revenues surging to record highs in the April-June quarter as a change in global trade flows following the Russia-Ukraine conflict, increased gas-to-oil switching, and robust margins provided India's biggest private refiner with opportunities to sharply lift sales volumes. In addition, strong travel demand and lower product inventory levels resulted in a tight global oil products market, opening up a window of opportunity for Reliance Industries to push its cargoes both in local as well as overseas markets, the company said July 22.
—Read the article from S&P Global Commodity Insights
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ESG
Investor Scrutiny Intensifies As More Banks Link Executive Pay To Climate Goals
Investors are paying closer attention to box-ticking attempts and poor metrics as more banks globally start linking executive compensation to climate goals. Sustainability targets are making their way into banks' variable remuneration policies, and the trend is likely to gain momentum in the wake of new guidance by the Basel Committee on Banking Supervision, a global standard setter for prudential regulation.
—Read the article from S&P Global Market Intelligence
Energy & Commodities
Listen: Can The West Enforce A Global Price Cap On Russian Oil?
As Russia continues its invasion of Ukraine, the Biden administration is contemplating ways to starve the Russian economy of revenues, the bulk of which come from Russian oil and energy exports. As part of that effort, the U.S. Treasury Department has been lobbying European and Asian leaders to support a price cap on Russian oil. Details of how that would be structured and enforced have been scant, but the idea is that a price cap would allow Russian crude supplies to continue to flow to the global marketplace but at a low enough price that Russia would not reap any benefits. Senior editor Jasmin Melvin asked several oil market experts to weigh in on one question: Can the West enforce a global price cap on Russian oil, and will it result in lower prices?
—Listen and subscribe to Capitol Crude, a podcast from S&P Global Commodity Insights
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Technology & Media
Netflix's Ad Business A Long-Term Play, Analysts Say
While Netflix Inc.'s push into advertising has captured the imagination of Wall Street and Madison Avenue, analysts expect it will be years before the effort yields material revenue. The company offered scant new details about the plan on its second-quarter earnings call, leaving analysts and investors with many questions about execution. The slow pace of the product's planned rollout underscores the challenge of the task, even for a streaming leader, analysts said.
—Read the article from S&P Global Market Intelligence