The Bear Market Is Here, and the Recession May Not Be Far Behind

By Lee Jackson Published Jun 13, 10:40AM EDT

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The Bear Market Is Here, and the Recession May Not Be Far Behind — © Byrdyak / Getty Images

Well, it was fun while it lasted. The politicians and decision-makers in government and at the Federal Reserve flooded the country with liquidity, especially while they panicked the nation with COVID-19, which turned the idle hands sitting at home into day traders. Now we are ready to hit the wall, caused by the mountains of money that were printed and either distributed or spent.

Friday’s 8.6% inflation reading was the highest since 1981, and gasoline prices surging past the $5 mark are at the highest level ever, with Brent and West Texas Intermediate crude both trading right near the $120 mark. The core inflation number at 6% also exceeded expectations, which means everyday items that consumers need are also hitting highs not seen in years.

The Federal Reserve meeting for June starts tomorrow, and there is speculation that the once for-sure 50 basis-point increase could turn into a 75-basis-point increase. While that may not happen this week, as Fed Chair Jay Powell knows that will spook the markets into an even bigger decline than what we have seen over the past three days, it is almost a certainty they will have to go that route in July.
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Morgan Stanley made some very precise and scary observations on where we stand as the S&P 500 slips back into bear market status, which is defined as a 20% or more decline. These were made as of the close on Friday:

We have had three consecutive days of 1% or greater losses for the S&P 500. That is the first time for that trend since April of 2020.
The S&P 500 posted its second-worst week of the year last week. The week ending January 21 was worse, down a stunning 5.68%.
The venerable Dow Jones industrial average has fallen in 10 of the past 11 weeks. That has not happened since the horrific days of the Great Depression.
The S&P 500 and the Nasdaq have now been down in nine of the past 10 weeks. The S&P 500 has not had a run that bad since April of 2001, and the Nasdaq since August of 2002.
Every sector was lower last week, and the selling has been either universal long selling or aggressive short squeezes.

The oddity is that last week marked the fifth consecutive week of inflows to U.S. equities, while inflows this year are at the $120 billion level. Even Cathie Wood’s hammered ARK Innovation flagship fund has seen massive inflows this year, despite being crushed to the tune of 75%.
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The reality for investors is this: don’t try to catch the proverbial falling knife. Raise cash where you can, as cash is king for now. If we break the 3,800 mark of the S&P 500, we could be headed to a June gloom ride to the 3,400 to 3,500 level. Plus, to add a touch more insult to injury, the cryptocurrency world, which we recently were told was indeed the future, is also crashing. Bitcoin was down over 11% Monday alone.

The rally point likely will be way down the road, as the Federal Reserve has to push rates higher to bring down the massive government-induced inflation. Don’t think for a moment the Russia-Ukraine war is the cause, despite the president’s finger-pointing. The inflationary trend started a year ago, and we were told all during the summer and the fall of 2021 that it was transitory and would fade eventually. Eventually it will, but not any time soon.

Recently, Treasury Secretary Janet Yellen finally conceded that she had failed to anticipate how long high inflation would continue to torment consumers. While all along she should have known that profligate spending and the massive printing of money would take its course, as it always leads to an inflationary environment. The incredible idea that the Democrats are still trying to push a slimmed-down spending package of “Build Back Better” boondoggle is amazing.
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Toss in the administration’s absurd energy policies, which basically has us begging OPEC and Venezuela to pump more, when just a few short years ago the shale revolution had the U.S. at energy independence, and all the necessary ingredients for a recession with inflation were put in place to whip a big case of 1970s stagflation. With first-quarter gross domestic product already posted at a negative 1.5%, and the Atlanta Fed lowering the current GDP tracker to 0.9% last week, we very possibly could be in a recession when the second-quarter numbers are released. A stagnant economy battered by inflation is likely to be That ’70s Show this summer.

About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.