Stocks weathered the Jackson Hole confab to rebound this week. But for bulls looking to be made whole after last year’s shellacking, the road back is longer than they realize.
Equities rose for the first time in four weeks, with the S&P 500 now recovering roughly 65% of last year’s bear-market drop. Factor in inflation, however, and the size of the retracement is less — only about 45%, adjusting for the consumer price index. Plotting the S&P 500’s value against nominal gross domestic product shows a similarly paltry recovery compared with the size of the economy, according to data compiled by Doug Ramsey at the Leuthold Group.
The S&P 500 notched its best week since July with traders sifting through a slew of central bank speeches Friday. Stocks, and in particular megacap tech names, have staged big recoveries as investors looked ahead to the end of the Fed’s rate-hiking cycle, and as hype over artificial intelligence helped to boost prospects for companies with ties to that industry.
Focus has turned to the state of the US consumer, whose cash cushion built up during the pandemic is fast dwindling. In the past two years, they have — in the face of high inflation — drawn down about $2 trillion of that savings. There’s a contingent for whom that might have a silver lining: the Fed. Some officials recently posited that their work in tightening financial conditions could be proving “more substantial than anticipated.”
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