Teach me now things can only get better D Ream

After a short recovery at the start of the week, US stocks finished the week lower and officially hit bear market territory, defined by a 20% fall, before managing quite a recovery by the close on Friday. Despite the rally, US stocks fell almost 3% on the week. According to Trading Economics, it’s the worst 8 weeks streek since 1923!

 If sentiment was not bad enough at the start of the week, by the end it has hit rock bottom. Whether that can now be said for stocks is another matter. The catalyst for the latest selloff was some pretty terrible numbers from large US retailers alongside some more hawkish comments from Jerome Powell, the Fed chair.

Stocks tend to bottom out when the news gets so bad that the next piece can only be better. Are we at that point yet? Inflation rates could start to ease in the coming months if only as comparisons get more favourable. The strength of the dollar which can put strains on emerging markets and in itself is a form of monetary tightening, did fall last week. At present, there is little sign of systemic risk, unlike in 2008 when the banking system nearly collapsed. Core money markets likewise do not indicate major stresses in the financial system. Although stocks continue to fall the Vix index, has barely moved, in absolute terms from where it was a month ago.

In the coming weeks, we get the preliminary Purchasing Manager surveys for the major economies. April saw the weakest pace of global economic growth since the initial pandemic lockdowns in early 2020, according to the JPMorgan Global Manufacturing Purchasing Managers’ Index. Aside from the continued impact, the war in Ukraine is having on the global economy, China’s persistence with a zero covid policy has further impacted growth. This should improve in the coming months as Chinese authorities are now once again opening up their economy.

Central banks will remain in focus this week as we get the minutes of the latest Fed meeting. We should get a further sense of how the underlying uncertainty surrounding the US economy is affecting sentiment between members. US investors will also focus in the coming week on personal income and spending. The latest release of the Federal Reserve’s preferred measure of inflation, the PCE is released on Thursday. Any sign that inflationary pressures are easing will boost sentiment.

Although there is plenty to focus on for the US economy, aside from the Purchasing Manager surveys there is little for UK and Europe. Christine Lagarde is due to make a speech this week, investors will be keen to hear any comments she may have on the current economic climate in Europe.