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.