‘We Are Heading Into A New Bear Phase:’ Economist David Rosenberg Sounds Dire Warning On Key Signal In ‘Every Major Average’

Summer doldrums have hit the stock market, which cruised along nicely in the first half of the year following a torrid 2022.

“We are heading into a new bear phase,” said noted economist David Rosenberg in a post on X, formerly known as Twitter.

He noted that every major average has broken below its 50-day moving average, including the Value-line Arithmetic and the S&P 500 Equal-Weight.

“Watch equities play some catch-up to Treasuries here,” Rosenberg said. Treasury prices have shot up to a 10-month high in the wake of some strong economic data that point toward possible further rate hikes by the Fed. Since bond yields and prices share an inverse relationship, the latter has pulled back.

Rosenberg also pointed to “rule number eight” by Wall Street veteran Bob Farrell, who said the bear markets have three stages, namely sharp down, reflexive rebound, and a drawn-out fundamental downtrend.

Every major average I know of has broken below their 50-day moving averages. Including Value-line Arithmetic and the S&P 500 Equal-Weight. Watch equities play some catch-up to Treasuries here … we’re heading into a new bear phase.

— David Rosenberg (@EconguyRosie) August 17, 2023

The recent weakness in the stock market is triggered by fears of the Federal Reserve continuing with its rate-hiking spree. Inflationary pressure, despite thawing from elevated levels, still remains well above the central bank’s target of 2%. 

With the bulk of the earnings season in the rearview, the next major catalyst is likely to be the September rate-setting meeting of the Federal Reserve scheduled for Sept. 19-20.

Between now and the September Federal Open Market Committee meeting, traders get to digest a jobs report and another inflation reading, and a lot more first- and second-tier economic data.

The data-dependent stance of the Fed leaves the market at the mercy of each incoming economic evidence.

Bullish analysts, however, point out that the market is pausing for a breather after the scintillating rally seen in the first half. Ryan Detrick from Carson Group sees this as a normal action in a seasonally strong period.

The SPDR S&P 500 ETF Trust (NYE: SPY), an exchange-traded fund that tracks the performance of the broader S&P 500 Index, ended Thursday’s session down 0.76% at $436.29, according to Zenger News Pro data.

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