The market traded in beginning 2022 to a high on January 4 of 4818 (S&P that is). Since then the S&P 500 has traded lower most of the year and found some sort of a bottom on June 17. From 4818 which is the January high to 3636 on June 17, the market rallied 17.6%.

We do not know if the worst is over, but we can certainly look at the information available to us. In the past bear markets, we have seen violent bear market rallies of 20%. From June 17 to August 16 the S7P rallied 17.6% which is in line with previous bear market rallies. Given market conditions and higher interest rates from the Fed we think the market trades lower.

The Federal Reserve has made it clear it will raise interest rates to tame inflation even if it causes higher unemployment and/or recession. Higher interest rates are a headwind for the market. Also take into consideration that the Fed is doubling its Quantitative Tightening in September. This means the Fed will be selling off its bonds that it holds on its balance sheet. Higher sales of bonds will lead to higher interest rates for bonds. Markets do not like higher interest rates, we see this as a headwind.

We think the market in the near term trades to around 3636, or even 5 – 10% below 3636. Our models suggest that between now and mid October the S&P goes down to around the 3300 level before finding support again.