The Dow Jones plus a recession is another matter entirely. Rollback of the second half of the year may remain a pipe dream

After an enchanting half-year results, the US stock market symbolically rolled back in Friday trading. The Dow Jones and S&P 500 gained just over one percent. The Nasdaq edged up 0.9%.

Despite this, weekly indicators do not let you relax on the weekends, and remind you that the market is in a bearish phase of its state. A modest 1.3% drop in the Dow Jones following the results of the five-day period that ended was more than made up for by an almost 7% collapse in the broad market index and a 4% loss in the Nasdaq Composite.

The essence of Friday’s increase is spoken by the growth leaders themselves, whose list in the DJIA was headed by such classic defensive papers as McDonalds (MCD) +2.46% and Coca-Cola Company (KO) +2.33%. In addition to food and drink, Americans were worried about national defense, so the top three best performers are closed by Boeing (BA) +2.28% – a manufacturer of not only civil aviation equipment, but also a wide range of military ones.

Investors also remembered the shares of Big Tech lying somewhere on the periphery. Against this background, its representatives such as Amazon (AMZN) +3.15%, Apple (AAPL) +1.62% and Microsoft (MSFT) +1.07% were marked by growth.

Outlook Micron Technology confused chipmakers

At the same time, so that no one is forgotten, the bears staged a demonstrative flogging in the semiconductor sector against the backdrop of disappointing financial projections Micron Technology (MU) -2.95%. The company cut its current-quarter revenue guidance to $7.2 billion from $9 billion amid a 5% drop in smartphone sales and a 10% drop in personal computer sales in the second half of the year.

Micron is a supplier to such consumer electronics giants as Apple, Motorola and Asus, so it has a good understanding of the trends in the industry. And the company’s outlook is a strong indication that the PC and smartphone market could be on the cusp of a major collapse after two years of “quarantine” demand. If we translate percentages into pieces, the market may not count the purchases of 130 million smartphones, and 30 million computers.

After such news, it was a sin for sellers not to take advantage of the situation and not establish their dictatorship in the shares of chipmakers. More than 4% of capitalization was washed away in the shares of Nvidia (NVDA), more than 3% were lost in the securities of Advanced Micro Devices (AMD), Qualcomm (QCOM) and Texas Instruments (TXN). Well, the 5% hit in Applied Materials (AMAT) looks like a fat dot in Friday’s bearish receipt.

Retail stocks continue to struggle

According to the good old tradition, American retail continues to finish off investors. Passions had not yet subsided after the quarterly reporting of Bed Bath & Beyond (BBBY), as the next corporate news brought down the papers of Kohl’s Corporation (KSS), which collapsed by almost 20%.

Firstly, the company significantly cut its quarterly financial forecast amid a decline in consumer activity, and secondly, it announced the termination of negotiations to sell its business, citing the unfavorable market conditions in the industry at the moment for such transactions.

Oil had little effect on oil stocks

More than 2.5% added on Friday quotations of futures contracts for oil. West Texas WTI returns to above $108/bbl. The price tag for the North Sea oil standard Brent exceeded $111. At the same time, shares of energy companies showed themselves rather weakly against this background. Only ExxonMobil (XOM), Occidental Petroleum (OXY), Phillips 66 (PSX) and Marathon Petroleum added more than 2%. Shares of Chevron (CVX), ConocoPhillips (COP) and EOG Resources (EOG) added more than a percent, while Hess (HES) and Cheniere (LNG) closed in the red.

Dow Jones and S&P 500 with a recession is a different matter

Analysts and economists continue not only to evaluate the results of the half year and quarter, but also try to model some probabilistic trends. The anti-record of the S&P 500 index based on the results of the first half of the year further divided optimists and supporters of a conservative assessment of the current situation. The former give historical examples of market recovery after a fall, while the latter also try to rely on more extensive data.

In the light of the Fed’s aggressive policy, a more interesting sample will be not statistics on declines as such, but market movements accompanied by a recession. Analysis Wells Fargo Investment Institute shows that such periods lasted an average of 20 months and brought negative returns of almost 38%.

Bear markets outside of a recession lasted an average of half a year. This is almost the same as what we have at the moment during 2022, and brought an average “profitability” of minus 29%. In aggregate, the average bear market lasted about 16 months and generated a negative return of 35%.

Analysts at Bank of America went even further. In the literal sense of the word. In their opinion, the government bond market is going through the most difficult times since 1865. And the US stock market, adjusted for inflation, is on track for the 1872 situation.