The SPDR S&P 500 ETF Trust (NYSE:SPY) rallied 1.5% on Wednesday as earnings reports from Visa Inc (NYSE:V), Alphabet Inc (NASDAQ:GOOG) (NASDAQ:GOOGL) and others reassured investors the U.S. consumer remains strong. Yet the second-quarter earnings season has been a mixed bag up to this point, and the Federal Reserve is expected to raise interest rates by at least another 0.75% on Wednesday.
The S&P 500 is now up 2% in the last month, leading some traders to conclude the 2022 market bottom is in and inflation has likely peaked. The S&P 500 remains down 16.9% year-to-date, and the recent gains could just as easily be a bear market rally as well.
Case For A Bear Market Rally: On Wednesday, Merk analyst Nick Reece said the last month of trading action looks like nothing more than a textbook bear market rally at this point.
"The market very well may make new lows, particularly if the economy slips into recession later this year or early next year. For now, the path of least resistance is probably lower," Reece said.
The good news for long-term investors is the S&P 500 is likely more than halfway to finding its 2022 bottom, and there's likely more upside than downside for stock prices for investors with a multiyear horizon, he said.
Reece said risk is skewed to the downside in the near-term, but skewed to the upside in the medium and long-term.
Even if the U.S. slips into a recession, he said the 2022 market weakness is simply a cyclical bear market in the middle of a secular bull market.
Benzinga's Take: It's extremely difficult for stock prices to rise when interest rates are rising as aggressively as they have been so far this year. The 2022 stock market selling pressure may not subside until it becomes clear inflation has peaked and is in steady decline.
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