The risk is a series of bear-market rallies that don’t last, hurting dip buyers and further damaging investor confidence
With the S&P 500 briefly on Friday down 20% from its January peak, it is very tempting to start trying to call the end of the selloff. The problem is that only one of the conditions for a rally is in place, that everyone’s scared. That worked beautifully for timing the start of the 2020 rebound, but this time around may not be enough.
The other requirements are that investors start to see a way through the challenges, and that policy makers start to help. Without those, the risk is a series of bear-market rallies that don’t last, hurting dip buyers and further damaging investor confidence.
This time central bankers are scared not by falling markets or the economic outlook, but by inflation. Sure, if something major breaks in the financial system, they will refocus on finance, and a recession may prompt them to rethink rate rises. But for now, inflation means that falling stock prices are seen merely as a side effect of tighter monetary policy, not a reason to invoke the “Fed put” and rescue investors.