Market Perspective July 28, 2022

Since the June low in stocks and bonds, markets have been moving higher. The character of this advance is different than the advances we have seen earlier this year. We see this in a number of the indicators we follow, the way our models are responding to the advance and the way stocks, government bonds, and High Yield Bonds are all moving higher together.

Inserted in the graph below are the year-to-date performance numbers for the major stock and bond sectors we follow.

While our models have responded to this advance and the advance has been constructive for our managed accounts, this advance has a number of challenges ahead of it. The first of the challenges is each of the indexes overcoming the last high as indicated in the graph. The second challenge is to overcome the downtrend line (not shown above) which can be drawn on each of the indexes’ graphs.

Many of us in the industry believe there is a high probability that what we are experiencing is a bear market rally in stocks. Bear market rallies can be significant but they are historically relatively short-lived. For our managed account clients this will not be a problem since the models will respond as market conditions change. For people who do not use a dynamic portfolio manager like Global Investment Solutions, this type of market can be very problematic ending in fairly substantial losses.