Every bear market rally remains so until proven otherwise. Continuing from our previous investment report, this week we had some very important surprises which led the indices to a very strong rally. Just as we had thoroughly analyzed.

The current rally completed 28 days and its performance is 11.06%. Going back even to 2008, every rally in the same time period with gains above 11% led to a bottom and a new long-term uptrend.

Source: Bloomberg

The events that sparked the rally

First, at the beginning of the week we had statements by the President of the USA, Joe Biden, that America is not in a recession and will not go into a recession. A few hours before, there had been statements by White House officials about the definition of a recession.

Second, on Wednesday, the Fed raised interest rates by 0.75% as expected and then during Jerome Powell's speech, the surprises began as it became apparent that for the first time in months, the Fed's future stance appears to be quite dovish. Of particular importance among what he said was his reference to future plans, saying: "Between today and September, any fall in inflation will have an impact on our moves."

Third, on Thursday, US GDP for the second quarter was reported to have fallen -0.9% versus estimates for a 0.4% rise. This is the second negative quarter and essentially a technical recession of the American economy. But mainly, this is another failure of the Fed, which once again shows that it cannot assess the situation correctly. But the conclusion is that another negative news turned into positive news for the markets.

Fourth, on Thursday, after the market closed we had two very strong surprises from Amazon and Apple, which exceeded analysts' estimates. Immediately after the announcement, Amazon traded 14% higher in the after market session and Apple 4% higher.

What other surprises might the future hold?

The situation is so pessimistic that the surprises that may follow are many. After all, Bank of America's latest report is entitled: "I'm so bearish, I'm bullish". It is extremely interesting that Apple, Tesla and some other big companies have managed to overcome all the difficulties of shortages and delays all this time. This is a point to keep because it is critical for future corporate announcements.

According to Citigroup, the situation in the global supply chain is smoothing out.

Source: Bloomberg

The corresponding index from the Philadelphia Fed also shows a significant improvement.

Source: Bloomberg

If we add to the above the fact that the USA and China are again starting to negotiate for trade tariffs, then we could have a surprise of great importance for the markets.

Is an inflation surprise coming?

Our view has remained stable since November 2011. We believe that inflation is mainly driven by the supply chain shock and the changes between supply and demand levels caused by the pandemic. The excess liquidity pre-existed and therefore we do not consider it solely responsible for the rise in inflation.

But if both the excess money supply and rising commodity prices have contributed to the spike in inflation (it does to a significant extent), then what situation are we in today?

Source: Bloomberg

The liquidity injected into the economy by the Fed has returned to normal levels. The withdrawal of liquidity also led to losses in stock valuations of more than $10 trillion and commodity prices have recorded losses. This looks more like a bullish indication.

Source: Republished from www.naftemporiki.gr (https://www.naftemporiki.gr/finance/story/1887978/bear-market-rally-molis-mpikan-oi-baseis-gia-tin-oloklirosi-tou)

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