🟪 Halfway-there optimism

We are now officially halfway through the year. Are we halfway through the bear market, as well? If we fell another 20% and put in the low on the last day of 2022, it would be pretty consistent with history: The average bear market saw the S&P fall 38% from its highs over 18 months.

View in browser A Note From Us As a thank-you for being a thoughtful subscriber, and in celebration of Independence Day, you've got $199 off tickets to DAS NYC. All you have to do is use code "NEWSLETTER" at checkout. Ends Monday, July 4th. "Optimism is the greatest act of rebellion."   — Carmen Medina Friday Halfway-There Charts   This bear market started when the S&P 500 made its all-time high on the first trading day of 2022, which is pretty convenient: You only have to look at the calendar to know the downturn is six months old — and look at the YTD SPY performance to know it's 21% deep.   We are now officially halfway through the year. Are we halfway through the bear market, as well?   If we fell another 20% and put in the low on the last day of 2022, it would be pretty consistent with history: The average bear market saw the S&P fall 38% from its highs over 18 months.   So, if we are, in fact, halfway there, this bear market would turn out to be a little quicker and deeper than average, but not by much.   We can hope for better, of course: The 1990 bear market was a pretty painless 20% downturn over just three months.    I wouldn't bet the farm on a 1990 repeat, but no one else seems to be either: Nothing would prove more people wrong than if the bear market were to end right now.   Is Independence Day the time to be rebelliously optimistic?    Let's see what the charts think.   The tightening has been quicker than normal, so maybe the downturn will be, too? Markets have been unusually eager to price in the Fed's increasingly hawkish messaging. We've willingly taken our medicine, which could possibly shorten our recovery time.   The bond sell-off has been historic: Any time something is the worst thing since 1865, it's surely about to get better? Buy bonds if you think so. (Equities, it depends. Could go either way.)   The market thinks the rate cycle is halfway there: Per Joey Politano's chart of Fed funds futures, the yellow line dropping below zero is the market telling us that the Fed will be cutting rates next year.   Fed funds futures don't make headlines, but the next GDP print should do: The Atlanta Fed sees Q2 GDP down 2.1% YOY. The Fed may have a harder time explaining why it's raising rates if that turns out to be accurate.   Retailers have been feeling it first: Retail inventories were growing 15% YOY at the end of April. But that was two months ago. It's since gotten worse, with retailers increasingly telling customers to keep their returns.    The money printer has been turned off: M2 is basically unchanged this year, which suggests inflation won't be the Fed's top concern much longer. That could be great news for risk assets. Or not, depending on how big the next worry (earnings) turns out to be.   So, are we halfway there yet? I'd say, yes. Just don't ask me where we're going.    Have a great weekend, revolutionaries. — Byron Gilliam P.S. — Find this newsletter helpful? Share it! Was this newsletter forwarded to you? Sign up here. Top Stories Binance CEO Says It Had First Pick Over FTX in Recent Crypto Deals — Blockworks EU Members Reach Agreement on MiCA — Blockworks Troubled Lender Babel Finance Reportedly Hires US Investment Bank Houlihan Lokey — Blockworks Is It Still Profitable? 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Sign up for free. Update your email subscription preferences here. Written by @bgilliam1982 and @coldjeus. Follow us on Twitter, LinkedIn, YouTube and Instagram. Copyright ©2022 Blockworks. All rights reserved.