Weekly Commentary July 31, 2022 | The Bear Bounce Continues

Today is George Jetson's birthday:

Macro Picture

The bear market rally continued this week with equities powering higher by nearly 4.5% despite a downbeat and worse-than-expected GDP report.  GDP, the sum of all output by the US economy, declined by a 0.9% annual rate.  This follows a 1.6% decline in the first quarter.  Personal consumption was still positive at +1.0% but that was sequentially slower than the last four quarters and down from +1.8% in the first three months of the year.

We are back to the "bad news is good news" dynamic, with investors seemingly penciling in a lower terminal federal funds rate after the second-quarter economic contraction. Growth stocks outperformed value stocks on weakness in the retail sector.

Remember how we discussed the fear of fast-falling earnings estimates for this quarter and beyond?  Well, that has begun to take hold.  But equity investors have taken the commencement of sellside earnings downgrades as a sign to buy, not sell, stocks.  

But valuations don't seem to matter all that much right now.  It's a macro-driven market with more emotional swings than fundamentals.  You could certainly make the argument that at 17+x forward earnings, the market is relatively expensive for this environment.  But again, it doesn't seem to matter all that much.  Retail buyers have really stepped in here shifting from ETFs to single stocks at the fastest pace all year.  

So what's next?