Anna Rathbun, Chief Investment Officer
Bullish Feelings in a Bear Market?
At the end of the second quarter of 2023, the markets are feeling good – perhaps a little too good. Some people are saying that the upward swing looks like a rotation into a new cycle, and some are even saying that we will not have a recession at all.
However, this feel-good sentiment can breed complacency. While we are more than 24% above the October 2022 trough for the S&P 500 Index as of June 30, 2023, it’s still too soon to say that we’re out of the woods.
We have seen this scenario play out many times before. During past recessions, it has not been unusual to see significant spikes, or “relief rallies,” during a bear market. Just look at the charts below, which represent the S&P 500 Index during the Dot-com bubble (top) and the Great Financial Crisis (bottom).
During these prolonged bear markets, there were considerable market runs that looked like bull markets but were in fact price recoveries embedded in the general downward trends. This also highlights the fact that a bull market is not an event but a process which unfolds over time in a cloud of uncertainty.
Even now, the debate over whether there will be a recession rages on because we are confronted with confusing data points, like a historically low unemployment rate accompanied by tightening credit standards. The ups and downs during a bear market process are normal, and that includes the bullish feeling that permeates the markets today.
What may make this time different is that during the recessions noted above, the Fed was actually cutting rates due to the weakness in the economy, not raising them like they are now. In other words, things may be different this time around, but the data still does not support a bullish story.
While the U.S. economy is incredibly resilient due to its highly diversified and self-sufficient nature, it would not be wise to rely on the “this time it’s different” mantra. With 16.9% YTD  gains in the S&P 500 Index, and the Fed still tightening into an inverted yield curve with the longest consecutive duration in over 40 years, I do not believe that the upward momentum in the equity markets will continue as if we have begun a new cycle. B y learning from history and considering where we are today, we can see that we may be in for a volatile ride during the second half of 2023.
Investment advisory services provided through CBIZ Investment Advisory Services, LLC, a registered investment adviser and a wholly owned subsidiary of CBIZ, Inc.
 From January 1, 2023 to June 30, 2023.