Friday's Market Minute: It's Almost 1 Year Since the Bear Market Began

Last week the market was excited about the possibility that the Fed might pull off a soft landing, briefly pushing the S&P 500 above the 200-day moving average. Failed breakouts are typically bearish signs, and the market seems to be returning to the belief that a recession is likely.

Yesterday’s move higher broke a 5-day losing streak; however, markets may stay in a tight trading range as investors await the outcome and language from the final FOMC policy meeting of 2022 next week. On November 30, Powell essentially confirmed the Fed's intention to moderate the pace of interest rate hikes starting in December, but also its intention to keep interest rates higher for longer at the restrictive level and warned against premature interest rate easing.

His moderation speech could be a warning that restrictive monetary policy has led to a severe inversion of the yield curve, and damage to the economy has already been done. As a leading recessionary indicator, the yield curve spread between the 10-year and 2-year Treasury bonds has been deeply inverted for the most of 2022. This accurately corresponds to a market oscillating around so much uncertainty.

The year-long bear market in equities has caused traders so much discomfort that rallies are short lived. Investors are reluctant to stick with the narrative around an equity market recovery based upon the false sense of security of a Fed pivot. The history of the Fed Funds rate indicates that whenever a recession manifests, the Fed shifted policy. From this perspective, it is probable that the Fed will pivot only if a serious recession arrives in 2023.

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