Has the market anticipated and discounted a multitude of economic problems?

After the fourth four-day rally of the year, market participants will react to the June jobs report here Friday morning. Bulls are hoping this isn’t just another countertrend rally, while bears are skeptical that the market can shake off a host of negative economic factors as we head towards earnings season.

The main question in play right now is whether the market has priced in the many concerns that have been so evident for some time. The problem of inflation is well known, and with the recent drop in oil, there is some hope that inflation will slow down.

More recently, there have been concerns that the Fed’s very hawkish stance will push the economy into a recession. There is much less confidence that this is already fully reflected in the market, and many fear that the second quarter results will prove that estimates and expectations are still too high.

One of the complexities of this market is that it is a rotating bear market that has been developing for over a year. Some of the groups that have been throwing things downhill recently have found good support and produced strong rebounds. Growth stocks and biotechnology are the best examples.

The ARK Innovation ETF (ARKK) is a good indicator for many growth stocks. It peaked in February 2021 and has shown good strength over the past two weeks. When we look at a longer term chart it is disheartening to see that it has gone from $160 to $40 during the development of this bear market, but there is improvement and that will give hope. to bulls.

The market faces significant macro headwinds and bulls’ best hope is that they are already priced in and discounted. We will soon see if this is the case.

Keep in mind that one of the main reasons many of the rallies in recent years have been so robust and produced V-shaped moves was because the Fed was keeping interest rates low and easing. quantitative. This is no longer the case. Liquidity is going to have a substantial impact on how the market eventually recovers.

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