Evaluating the Stock Market's Performance One Year After the 2022 Bear Market Bottom
As the stock market approaches one year since the October 2022 bottom of the mini-bear market, its report card would likely read, "Good effort, shows perseverance, needs improvement." In broad statistical terms, the S&P 500 has maintained its uptrend since October 12, 2022, sitting 20% above its low close of last year. However, compared to the first years of other bull markets, this performance places it at the lower end.
Unevenness of the Market
The market's feebleness can be observed through the unevenness of its performance. While the equal-weight S&P 500 is up less than 12% from its low, the median stock in the index has only seen an increase of 3% to 4% over the past 12 months. The small-cap Russell 2000 has dipped below its 200-day average and is slightly down year-to-date. On the other hand, the mega-cap-growth proxy Nasdaq 100 has recaptured its relative peak, which may appear unstable and unrepresentative to some investors.
Divergences and Earnings Growth
The projected earnings growth of the largest growth stocks has surged in recent months, while the rest of the market has grown cheaper due to rising recession probabilities and higher capital costs. Stephen Suttmeier, technical strategist at Bank of America, finds evidence that such divergences are not necessarily poor omens in the short term. However, the internal struggle of the market cannot be spun as a positive in itself.
Opposing Forces and Economic Outlook
The market's performance has come against strong opposing currents, including rising interest rates and a sudden regional bank failure. Despite these challenges, there is a trend of ebbing inflation and an anticipated re-expansion of corporate earnings. Jurrien Timmer, director of global macro at Fidelity Investments, suggests that the stock market has been in limbo and could end with either a recession or a soft landing with falling inflation.
Market Valuation and Earnings Season
The recent market pullback has reduced some valuation risk, with the S&P 500 now at 17.7-times 12-month forward profit forecasts. Earnings season is also kicking off, and positive economic-surprise metrics in the third quarter indicate potential upside surprises. However, the recent weakness in stocks since mid-summer may impact investor expectations.
As the market continues to navigate its path, it remains to be seen if the recent turbulence will lead to a routine pullback or a more significant shift. The past year's advance has left much to be proven, and both optimistic and pessimistic outlooks carry a burden of proof. The outcome of the economic landscape in the coming quarters will determine the market's trajectory and its ability to break out of the late-cycle psychology.
Assessing the Impact of the Stock Market's Performance on New Business Formation
As we approach the one-year mark since the October 2022 mini-bear market bottom, the stock market's performance offers key insights for new business formation. The S&P 500 has maintained an uptrend, sitting 20% above its low close of last year, but the performance is uneven across the market.
Market Performance Disparities
The disparity in market performance is evident. The equal-weight S&P 500 is up less than 12% from its low, and the median stock in the index has only seen a 3% to 4% increase over the past year. The small-cap Russell 2000 is slightly down year-to-date, while the mega-cap-growth proxy Nasdaq 100 has recaptured its relative peak. This unevenness could impact new businesses differently depending on their size and sector.
Market Divergences and Earnings Growth
The largest growth stocks have seen a surge in projected earnings growth, while the rest of the market has grown cheaper due to rising recession probabilities and higher capital costs. For new businesses, this could mean more competition for investment. However, Stephen Suttmeier, technical strategist at Bank of America, suggests that such divergences are not necessarily poor omens in the short term.
Challenges and Economic Outlook
The market's performance has been against strong opposing currents, including rising interest rates and a sudden regional bank failure. Despite these challenges, there is a trend of ebbing inflation and an anticipated re-expansion of corporate earnings. This could impact new businesses' financial planning and market strategies.
Market Valuation and Earnings Season
The recent market pullback has reduced some valuation risk, with the S&P 500 now at 17.7-times 12-month forward profit forecasts. The upcoming earnings season could bring potential upside surprises. However, the recent weakness in stocks since mid-summer may impact investor expectations and the availability of capital for new businesses.
In conclusion, the stock market's performance over the past year presents both opportunities and challenges for new businesses. The outcome of the economic landscape in the coming quarters will determine the market's trajectory and its impact on new business formation.
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