Last week broke the multiweek losing streak for global equities as most major indices produced a strong bounce. Only time will tell whether the short-term rebound is the beginning of a sustained recovery in stock prices, or a temporary blip caused by selling exhaustion. Recalling the bursting of the dotcom bubble, the NASDAQ Composite dropped a stunning 80% from its high in March 2000 to its nadir in October 2002. In that time, there were eight significant rallies in the Index that averaged just over 26% (chart and table below) and lasted from 2 weeks to 3 months. Calling the ultimate bottom of a market correcting many years of speculative excess is no easier today than it was 20 years ago.

Source: Bloomberg Finance

Source: Strategas Research Partners

We have produced the below chart in prior writings to highlight how behind the curve the Fed is in addressing the current spike in inflation. The Fed needs a lot of help in the form of smoothly functioning supply chains and declining commodity prices in order for inflation to fall.

Source: Strategas Research Partners

Income growth for the FAAMG (Facebook, Apple, Amazon, Microsoft, Google) stocks this year is expected to decline -5% (chart below). This is a material change to years past where these stocks were growth leaders. Although the consensus believes growth will return next year for these companies, the bigger risk may be if growth expectations disappoint once again. It must be remembered that these names still constitute over 20% of the overall index. Investors expecting a return to the old playbook of buying growth at any price are failing to recognize the significant regime shift that has taken place over the last year.

Source: Strategas Research Partners

In brief the weight of evidence as yet does not confirm all clear for risk assets and and suggests that a more defensive portfolio strategy is still warranted.