Despite moving higher in recent weeks, the stock market still has further to fall, with recent gains likely to be nothing more than abear market rally, as investor concerns about Fed rate hikes and slowing economic growth continue to weigh on markets.

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Analysts caution that recent optimism may be overstated.

Seth Wenig/Associated Press

Despite an earnings season marked by profit warnings from major companies, the stock market has risen significantly from its low point in June, with the S&P 500 gaining 12% over the last three weeks.

With stocks starting to recover from a brutal selloff in the first half of the year, investors are now debating whether recent gains are merely a bear market rally or the beginning of a new bull market.

According to analysts at Bank of America, it is too early to declare a big low in the market, as the Federal Reserve continues to hike interest rates.

Many traditional indicators of a market bottom are yet to be triggered, such as rising unemployment, the Federal Reserve starting to lower interest rates, and a decline in the 2-year Treasury yield.

According to Bank of America, since the end of June, clients have been net buyers of equity rather than sellers.

The unexpectedly strong jobs report last Friday, which investors worry will embolden the Fed to continue aggressively raising rates, also signals that the recent bear market rally will soon come to an end.

The Fed pivot, where the central bank pulls back from its aggressive tightening of monetary policy, is a sign that the market is returning to normal. The U.S. economy is proving to be more resilient than it is being given credit for.

Crucial Quote:

Mark Hackett says investors are increasingly in a game of tug-of-war over bullish and bearish talking points. He warns that confusion is driving investor decisions.


If the market goes down, what can investors do? Analysts at Bank of America suggest using bear market rallies to raise cash. Tax-loss harvesting techniques should be used before better buying opportunities this year.

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