Late last week, there was some hope that the market low may have been in as the market briefly touched bear market territory before violently reversing higher. Equally important, there were some positive developments under the surface like the rally in bond yields finally hitting a ceiling with the 10-year around 3%.
There was also a major bounce in some of the most beaten-up parts of the market like tech and growth stocks. Another positive is that the earnings season continues to come in better than expected. 77% of companies beat estimates, and the overall earnings growth for the S&P 500 (NYSE: SPY) is looking to be 9.5% while analysts were looking for 4.5% 2 months ago.
However, the market quickly gave up these gains and in Friday's session broke through Thursday's lows. The market did rally in the final hour of the day to finish unchanged and above Thursday's lows.
So, bullish hopes remain alive due to these improvements and the last-minute close above resistance. But, what is clear is that the market's fears seem to be shifting away from inflation and a hawkish Federal Reserve to a slowing economy.
For anyone bullish on the stock market and economy, consumer spending and the earnings reports of big-box retailers have been an easy counter to anyone warning about impending economic weakness. This is no longer the case as these companies are clearly faltering.
They are getting hit hard by several factors including consumers who are slowing spending due to inflation and increased spending on services vs goods. Additionally, many of these companies were holding inventory levels at higher than normal levels due to supply chain issues and transportation bottlenecks. However, these are getting worked out which means that retailers have an abundance of out-of-season inventory.
The next big question for the market is whether or not this retest of last week's lows will hold. Below these levels, it's likely going to spell more opportunities for the bears, while bulls can get aggressive above these levels.