The Next Bear Market Rally Starts October 1st?

Stocks jumped higher at the open today as Monday’s continued bearishness became a dip-buying opportunity. The Dow, S&P, and Nasdaq Composite all gained.

A falling dollar mercifully pumped up risk assets across the globe this morning after spiking in response to the pound’s weekend flash crash.

Chicago Fed President Charles Evans also boosted sentiment with a statement on rates.

Evans said he remains “cautiously optimistic” that the US economy can avoid a recession. When asked if the Fed was going overboard with its hikes, he responded:

“Well, I am a little nervous about exactly that.”

“There are lags in monetary policy and we have moved expeditiously,” Evans said.

“We have done three 75 basis point increases in a row and there is a talk of more to get to that 4.25% to 4.5% by the end of the year, you’re not leaving much time to sort of look at each monthly release.”

Music to bullish ears.

Evans kept the good times rolling:

“Again, I still believe that our consensus, the median forecasts, are to get to the peak funds rate by March — assuming there are no further adverse shocks. And if things get better, we could perhaps do less, but I think we are headed for that peak funds rate,” he said.

“That offers a path for employment, you know, stabilizing at something that still is not a recession, but there could be shocks, there could be other difficulties.”

“Goodness knows every time I thought the supply chains were going to improve, that we were going to get auto production up and used car prices down and housing and all of that something has happened. So, cautiously optimistic.”

Evans has historically been one of the Fed’s biggest doves. His comments this morning, while welcome to bulls, should not have come as much of a surprise.

Through noon, however, stocks ultimately retraced as yields soared. The 10-year Treasury yield jumped to a daily high of 3.974% while the S&P was “monkey hammered” lower in a major intraday reversal.

And though the recent bout of selling has certainly been massive, some analysts (correctly) think more pain is in store for bulls even if stocks do end up staging a bear market rally in the near future.

Mega-bull (and mega-accurate) Mike Wilson from Morgan Stanley sees the S&P falling to the 3,000-3,400 range this fall thanks to downward earnings revisions.

The seasonal tendency for September is bearish. October, on the other hand, has notoriously been a “bear killer.” If a big bear market rally is on its way, October 1st seems like as good a time for it to start given the market’s seasonal trends and its short-term oversold status.

But until then, don’t be shocked if stocks drop even lower from here.


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