Beware: 5 Reasons to Fall Back into a Bear Market

Some market experts are starting to worry that this summer's rally in U.S. stocks may be starting to fade after stocks swooned from oversold to overbought.

On last Friday, the $S&P 500(.SPX)$fell 1.3%, the $NASDAQ(.IXIC)$ fell 2% on Friday, and the $DJIA(.DJI)$ fell 0.9%; the $S&P 500(.SPX)$ fell 2% , the $NASDAQ(.IXIC)$ fell 2.55%, and the $Dow Chemical(DOW)$ fell 1.91% on this Monday.

Below lists five reasons why US stock may continue to decline, cited institutions's analysis from Goldman Sachs and Citigroup:

1. Defensive Sector Started to Lead the Market

Cyclical sectors once performed well along with U.S. stocks rebounded in July and early August. But that trend appeared to come to an end last week, with defensive sectors regaining the lead. On the other hand, the two worst-performing sectors were cyclical, materials and communications services. $Materials Select Sector SPDR Fund(XLB)$ , which tracks the former, fell 2.4% last week, while $Communication Services Select Sector SPDR Fund(XLC)$ fell 3.1%.

You may interested in Weekly: Defensive Sector Leads The Market, Bear Rally Ended?!

Goldman said,

"One sign that investors are getting nervous is that cyclicals are underperforming defensives, and we're starting to see that now,"

2. U.S. Bond Yields rose Since August

The 10-year Treasury yield has climbed 35 basis points since Aug. 1st and rose14 basis points since last Monday to now 2.897%.

Rising U.S. Treasury yields will trouble U.S. stocks because it makes bonds a relatively more attractive investment. U.S. stocks and bonds often move in unison at the start of the year, as expectations of tighter monetary policy from the Federal Reserve weigh on both assets.

Goldman and the rest of Wall Street are now waiting to see if stocks will follow bond prices decrease.

3. A Higher Dollar May Accompany a Weaker Stock Market

Rising U.S. Treasury yields and weaker inflation pushed the dollar higher, creating another potential headwind for stocks. The ICE U.S. Dollar Index topped 108 on Friday, rising to its strongest level in a month.

A strong dollar typically accompanies a weaker stock market, as a stronger dollar can adversely affect the value of U.S. multinationals' overseas profits in dollar terms.

4. Cryptocurrencies also Falling

The recent moves in cryptocurrencies such as bitcoin and ethereum have been almost in step with stocks, particularly large-cap tech stocks such as $Meta Platforms, Inc.(META)$ and $Netflix(NFLX)$ .

But cryptocurrencies fell sharply on Friday, prompting some market participants to speculate whether stocks could follow suit.

Goldman said,“Another sign of a pause in the rally in U.S. stocks is weakness in cryptocurrencies. It’s a clear sign of a risk-off trend in the market,”

5. Stock Valuations Rebound but Corporate Profit Expectations Decline

Another reason to question the U.S. stock market rally is the apparent discrepancy between stock valuations and corporate profit expectations.

As Goldman points out, the average forward price-to-earnings ratio for S&P 500 companies has rebounded to 18.6 times from a mid-June low of 15.5 times. Meanwhile, the average earnings-per-share forecast for these companies over the next 12 months fell from $238 to $230.

"Equity valuations are rising, while profit expectations are falling," Goldman said.

Citigroup U.S. equity strategist Scott Chronert also said in a recent research note to clients of the bank that the risk of a decline in public company profits as we approach 2023 could weigh on stock valuations.

"If the stock market strengthens further, a tactical rallies sell is justified," he said.

Assuming US stocks continue to fall?

Where do you think U.S. stocks will fall to support?

1.Above 3900 point?

2. Above 3600 point?

3.Below 3600 points?

voteWhere the SPX Support Level Will be?(Single choice)
31 people voted· Ended
# US Stocks Opportunities

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  • koolgal
    ·2022-08-24
    TOP

    There are 2 main factors that will greatly influence where $S&P 500(.SPX)$ will fall.

    Firstly it is the level of inflation.   Even though inflation has fallen to 8.5% recently from 9.1%, it is at 40 year high.

    Secondly the action by the Feds on how much to hike interest rates.  This is dependent on the level of inflation. 

    From the recent rhetoric from the Feds it is apparent that the Feds will continue to hike interest rates but the final say depends on Jerome Powell.   

    So for now I believe $S&P 500(.SPX)$ will continue to trend downwards until high inflation is reined in.

    @Capital_Insights  @TigerStars  @CaptainTiger  

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  • greeny9451
    ·2022-08-25
    TOP
    correct fed can't be soft anymore that's how we got like this oil prices rose from 13 to 20 to 30 then 60 then 80 over 12 months   covid period eyes off the ball
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  • MasterStonker
    ·2022-08-25
    Yayayaya papaya//@koolgal: There are 2 main factors that will greatly influence where $S&P 500(.SPX)$ will fall.Firstly it is the level of inflation.   Even though inflation has fallen to 8.5% recently from 9.1%, it is at 40 year high.Secondly the action by the Feds on how much to hike interest rates.  This is dependent on the level of inflation. From the recent rhetoric from the Feds it is apparent that the Feds will continue to hike interest rates but the final say depends on Jerome Powell.   So for now I believe $S&P 500(.SPX)$ will continue to trend downwards until high inflation is reined in.@Capital_Insights  @TigerStars  @CaptainTiger  
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  • Zcc99
    ·2022-08-29
    Too many bad news.
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    • 1Robo
      ok
      2022-08-29
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  • Big Little
    ·2022-08-29
    OK thank you. Comprehensive.
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  • Mei9899
    ·2022-08-25

    好的

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  • Samluo
    ·2022-08-24
    Agree. Index just hit the resistance and is on the way down
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  • ensemble
    ·2022-08-29
    should trend lower
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  • CYberviRus
    ·2022-08-29
    Thank you
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  • Andie8392
    ·2022-08-29
    good post.. thanks for sharing
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  • monkeyking
    ·2022-08-24
    如履薄冰。。。
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  • ValuInvestor
    ·2022-08-29
    All signs of trouble
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  • MasterStonker
    ·2022-08-30
    👌🏼👌🏼👌🏼👌🏼
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  • qii
    ·2022-08-29
    Thanks for sharing
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  • kellyWin
    ·2022-08-29
    thanks for sharing
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  • BYLI
    ·2022-08-24
    Nice article 😎
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  • Lexcool
    ·2022-08-29
    Cool
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  • Bek
    ·2022-08-29
    👍
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  • Carrie7
    ·2022-08-29
    Good
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  • no
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