Do you think the bottom is in?

Recovery mode?

The S&P 500 hit a low of 3,666.77 on June 16, 2022. On Friday, it closed at 4,130.29, which is 12.6% higher than the June 16 bottom. That’s bigger than the pre-bottom rally the market had of 11.1% between March 8 and March 29.

So, is this another pre-bottom rally? Will the market hit a low that is lower than 3,666.77? Or is the bottom in?

Based on Friday’s close, there would need to be a drop greater than -11.2% to set a new low. If we imagine a blank slate for the market and consider what would need to happen to get a correction (i.e., a -10% drop), then we’d almost certainly need some kind of news. A new, bearish story.

There are plenty of stories we can imagine that could come out of nowhere and cause another leg down this year. But, the most obvious one is probably a continuation of the current story. Inflation and geopolitical conflict. Perhaps inflation isn’t peaking or there is a much bigger turn in the Russo-Ukrainian War. Even so, either story, or the combination of stories, would need to be enough for the market to care enough to push this downturn up the list of worst downturns since the Great Depression.

It’s a big ask and, if you think it’s too big of one to happen before the market sets an all-time high, then you probably also believe that the bottom is already in. And, if it is, then we are in now in downturn recovery mode.