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The bottom of the stock market remains elusive despite the deepening decline

US stocks are in the midst of the longest sold-out in decades.

It is everyone’s guess whether they are near the bottom.

Market sellouts have long been confused trying to predict when strategists are nearing completion. Some have ended up with a panicked sales explosion. Others, such as those that lasted from 1973 to 1974, settled at the end after a few days. Suppressed trading volume..

Looking back on the historic recession, many investors and analysts believe that the current slump that has pushed the S & P 500 to the top of the bear market is still a long way off.

The index is down 19% from the January 3 record and flirts with a 20% drop ending the bull market that started in March 2020. This year’s stock sale is now in its fifth month and has been going on for much longer. According to Deutsche Bank, a typical pullback that occurs without a recession.

Still, the Federal Reserve is in the early stages of a campaign to raise interest rates. In short, financial conditions will be even tighter and stocks will be under more pressure in the coming months. According to Dow Jones Market Data, many are skeptical that central banks can continue to raise interest rates without a recession.

Data continue to suggest that this year’s sales are painful, but have not yet brought about the types of changes in investment behavior seen in the previous recession.

Investors continue to have a significant portion of their portfolio on the stock market.

Bank of America Corp..

This month, the individual customer said he was devoting an average of 63% of his portfolio to stocks. This is much more than after the 2008 financial crisis, when it held only 39% of the portfolio.

Expected market volatility measurements are definitely below the levels that were violated at the time of the previous sale. The Cboe Volatility Index (VIX) was well above 40 during the March 2020, November 2008 and August 2011 sellouts. This year, we haven’t exceeded that level yet.

Investors aren’t rushing out of some of the hardest parts of the market. According to FactSet, ARK Innovation ETFs have generated a net inflow of $ 1.4 billion this year, despite progressing well to achieve the worst returns ever. Leveraged ETFs and semiconductor stocks, which provide investors with a way to amplify their bullish bets on the Nasdaq 100, have raised billions of dollars this year.

Cole Smead, President and Portfolio Manager of Smead Capital Management, said:

Like many other investors, Mr. Smeed is trying to identify a company with an attractive reputation that he believes can withstand rising inflation and slowing growth.One of the companies that Mr. Smeed is paying attention to is

Starbucks Co., Ltd...

, Shares previously owned by the company. But like almost everything else on the stock market, coffee chain shares have fallen this year.

Starbucks shares have fallen 37% towards the worst year since 2008. The S & P 500 fell 18% annually, recording a loss for the seventh straight week on Friday.

“Things will continue to get worse before they get better,” Smeed said.

What is one of the reasons why so many investors are now cautious? Soaring inflation. The Federal Reserve is raising interest rates to curb inflation. Inflation rose at the fastest pace since the 1980s earlier this year. It aims to make a “soft landing” a success. In other words, it slows the economy enough to curb inflation, but avoids putting the United States into recession.

Many investors are afraid that central banks will not succeed based on the previous cycle of monetary tightening.

Back in the 1980s, the United States fell into recession four out of six Fed launch campaigns, according to a study by the Federal Reserve Bank of St. Louis. This time, the central bank faces the additional challenge of trying to curb price increases while Russia’s invasion of Ukraine and China’s Zero-COVID policy increases supply chain disruptions and inflationary pressures around the world.

David Rosenberg, President and Chief Economist of Rosenberg Research, said:

Rosenberg believes the market will find it difficult to find a decisive bottom before the Fed completes monetary tightening, or has succeeded in reducing inflationary pressure without risking a recession. He added that he convinced investors.

Others have pointed out that while the decline in stocks is painful, it has not yet reached the seriousness of the previous bear market.

Data from Ned Davis Research show that dating back to 1929, the S & P 500 fell by an average of 36% in the bear market.

The end of the sale is “a great buying opportunity, but I don’t think the moment will necessarily be here tomorrow,” Smeed said.

Write a letter to Akane Otani akane.otani@wsj.com

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The bottom of the stock market remains elusive despite the deepening decline

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