Markets may retest their 2022 lows

US indices may or may not fall below their 2022 lows, says Ned Davis Research (NDR), but a retest of mid-June’s market nadir looks increasingly likely.

NDR was hopeful last month, saying the rebound appeared “more comparable to the early stages of cyclical bull markets than bear market rallies”. However, Federal Reserve chief Jerome Powell’s hawkish speech at Jackson Hole means “the window for a retest has flung open,” says NDR.

Increased recession fears and poor seasonality – historically, the weakest time of the year for stocks has been from September 6th to October 25th – means indices could retest those lows within weeks.

NDR says a retest of the lows isn’t uncommon in a market searching for a bottom. Occasionally, bottoms are marked by a V-shaped recovery, as was the case following December 2018′s steep sell-off, but such cases are atypical. History aside, the Fed’s stance “makes a retest more likely”.

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NDR also notes the average non-recessionary bear market lasts about seven months and stocks decline around 25 per cent, putting the 2022 decline in line with the typical case. However, recessionary bear markets are more severe, lasting about a year and suffering an average decline of 35 per cent.

So will stocks survive the aforementioned retest? That depends on whether the US avoids recessions, says NDR.