The The S&P 500 started 2022 with a bang, hitting a new all-time high of 4,818.62 on January 4. This date would mark the peak of the index, as the Santa Claus rally that had accelerated in late December 2021 came to an abrupt end.

After the recovery faltered, investors were forced to take more seriously the increasingly hawkish tone the Federal Reserve adopted in the fourth quarter of that year as the overheated economy raged and inflation was skyrocketing.

What happened: Awareness began to sink in that the billions of dollars the central bank had blighted the market with during the COVID-19 pandemic would undoubtedly be drained, inflation would be tackled through a series of interest rate hikes. interest and, as May approaches, traders and investors would have their first seasonal market holiday since 2019, when the idea of ​​a global lockdown was anything but unfathomable.

The bearish sentiment may have been slow and slow in coming. Retail traders, who began trading and investing during the pandemic on work-from-home orders with bank accounts full of stimulus checks, had never experienced a bear market and may have been slow to react .

Extreme fear finally hit in the five days leading up to the June 15 Fed meeting, in which the S&P 500 plunged almost 10% on fears the Fed would raise its target rate by 0.75% . When that fear became reality, the S&P 500 slid another 4% to a low of 3,636.87 on June 17.

Market sentiment at this time was at its lowest in years. After all, the S&P had been on a bullish tear since the week of March 23, 2020, climbing 119.84% between that week and the first week of January 2022. But, as the old saying goes “when everyone looks in one direction, it is better to look at the other.”

It seems the adage has held true, with the S&P having rebounded more than 16% since June 17.

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What this means: A booming economy triggers inflation, leading to interest rate hikes, which in turn breed growing fears of a recession.

During a recession, companies often struggle to maintain profitability as consumers tighten spending, and because the market is looking to the future, investors begin to pull money out of high-risk stocks to avoid losses caused by disappointing quarterly financial reports.

Money then begins to flow into commodities such as oil, gold and silver, which began to happen in December 2021, foreshadowing the eventual downturn in general markets.

Between December 2, 2021 and June 8, the United States Petroleum Fund (NYSE: USO) climbed just under 100% higher. Likewise, the SPDR Gold Trust (NYSE: GLD) jumped 18% between December 15, 2021 and March 8. The two funds peaked at the $92.20 and $193.30 levels respectively, which marked the top for oil and gold and preceded the bottom for the S&P 500.

And after? Bullish sentiment has slowly returned to general markets, with the S&P 500 showing a clear upward trend over longer time frames and stocks considered “high risk” beginning to follow.

Shopify, Inc. (NYSE: SHOP), Snap, Inc. (NYSE: SNAP), Affirm Holdings, Inc. (NASDAQ: AFRM) and carnival society (NYSE: CCL) are all considered high risk in the event of a recession, as corporate revenue streams depend on consumers’ disposable income.

The slight rise in all four stocks may indicate that recession fears are fading. After the US Department of Labor released its Consumer Price Index data on Wednesday showing inflation may have peaked, Shopify, Snap, Affirm and Carnival reacted bullishly, indicating investors could be prepared to take more risk and that the down cycle may be coming to an end.

For the month of August, Shopify, a Canadian-based e-commerce giant, is up around 17%. Snapchat’s parent Snap grew over 14%. Similarly, Affirm, an installment loan financial lender that would suffer during periods of rising interest rates, has climbed more than 43% since Aug. 1. Carnival, a cruise operator, is up 18%.

Taking Benzinga: Although the markets are bullish at the moment, bulls take place during each longer-term bear cycle. The S&P 500 broke below the 200-day simple moving average (SMA) on April 6, throwing the ETF into a bearish cycle, which for technical traders was predicted by a death cross on the fund’s chart. , which occurred on March 14.

The S&P 500 is trading around 2.3% below the 200-day SMA, and if the ETF can regain the zone as support, the 50-day SMA will eventually break above the 200-day, causing the formation of a golden cross and give bullish traders more confidence, a real bullish cycle is on the horizon.

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