Bear Market Rally?

All of the major market indices have rallied nicely off of the lows set in June. The question is whether this is the start of a new bull market or merely a bear market rally. Fundamentally, stock prices are all about earnings. As corporate earnings rise, stock prices usually follow. While corporate earnings and stock prices are correlated it is not a direct correlation.

Over time, corporate earnings have always risen which is why the stock market is a good long-term investment vehicle. Right now, we are in the midst of a recession (I am going to be a stickler and stay with the classic definition of a recession, which is consecutive quarters of declining GDP), so it is reasonable to assume that earnings are going to be adversely impacted.

We are already starting to see a large number of companies begin to tighten their belts and start laying off employees. According to this article here are just some of the announced layoffs:

Peloton: Over 4,150 people

Shopify: About 1,000 workers

7-Eleven: 880 jobs

Vimeo: 6% of its workforce

Tesla: 229 employees

Rivian: Potentially around 5% of its workforce

Gopuff: 10% of its staff

Re/Max: 17% of its workforce

Microsoft: Less than 1% of employees

JPMorgan: Over 1,000 workers

Compass: 450 employees

Redfin: About 6% of total employees

Coinbase: About 18% of its workforce

Carvana: About 2,500 people

Reef: About 750 people

Better: About 4,000 people

Noom: 495 people

Thrasio: Up to 20% of staff, sources say

Robinhood: More than 300 people

Wells Fargo: Unknown number of people in mortgage lending

Canopy Growth: 250 people

Food52: About 20 people

Cameo: 87 people

PayPal: 83 people

Gorillas: ‘Nearly 300’ people

Netflix: About 150 people

Outside, ClickUp, Zulily, and Latch all laid off people

Now, while the totals are merely a drop in the bucket of our national employment, it does show that many companies are expecting the slowdown to be around for a while. If this is the case, then corporate earnings are likely to be down and it is reasonable to think the same for stock prices over the mid to long-term. We’ll see.