Thomas Hobbes, 17th century English philosopher, famously described the natural state of human existence as “nasty, brutish, and short.” Perhaps we’ll be able to say the same thing about this bear market.

The bear market bottom so far was reached on June 16, with the S&P 500 posting a 23.6% decline from its January 3 peak. Since June 16, the S&P 500 has gained 7.35% (as of market close July 19).

Watch This Video: Has The Stock Market Stabilized?

The indices Tuesday soared as follows: the Dow Jones Industrial Average +2.43%; the S&P 500 +2.76%; the tech-heavy NASDAQ +3.11%; and the Russell 2000 +3.50%. The major indices traded above their 50-day moving averages for the first time since April.

In pre-market futures contracts Wednesday, the four U.S. benchmarks were extending their rally, after beleaguered streaming giant Netflix (NSDQ: NFLX) posted better-than-expected second-quarter operating results.

A gentler bear…

The bear market this year has been nasty and brutish, for sure. But it could be on track for being relatively short, as well as less deep, than its modern day predecessors (see chart).

A bear market ends when the index reaches its low before going on to set a new high. Let’s be clear: We’re not out of the woods yet, and there’s still plenty of bad news to go around.

Released Monday, the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), which gauges housing market conditions, found that sentiment among builders dropped 12 points, from 67 in June to 55 in July. The consensus expectation had called for a decline to 65.

The culprits were production bottlenecks, soaring labor and materials costs, and rising interest rates.

This HMI’s decline represents the biggest single-month drop in the survey’s 37-year history, except for April 2020, when the “black swan” of the coronavirus outbreak drove the index down 42 points.

The housing sector, which is a leading economic indicator, faces the headwinds of elevated inflation and tightening monetary policy.

However, second-quarter earnings results for the S&P 500 have been encouraging. Not only has earnings growth held firm, but guidance generally has been positive and not indicative of a looming recession.

The blended year-over-year earnings growth rate for Q2 is 4.2%. For calendar year 2022, analysts are projecting earnings growth of 9.9% and revenue growth of 10.7%. Those are not recessionary numbers.

Stocks had been pricing in a recession, but there’s a growing consensus in corporate boardrooms and on Wall Street that those predictions have been too dire.

The biggest threat to corporate bottom lines is inflation, which is squeezing profit margins. The blended net profit margin for the S&P 500 for Q2 2022 is 12.4%, which is above the five-year average of 11.2% and the previous quarter’s net profit margin of 12.3%, but below the year-ago net profit margin of 13.1%.

It’s a positive sign, though, that analysts predict net profit margins for the S&P 500 will be higher than Q2 2022 for the rest of 2022. As of today, the estimated net profit margins for Q3 2022 and Q4 2022 are 12.9% and 12.7%, respectively.

Robust jobs growth and retail spending also contradict the notion that the economy will fall off a cliff.

What’s more, we’re also seeing emerging hopes, realistic or not, that inflation will soon get under control.

Gasoline prices, always a politically sensitive topic, have fallen for 36 days in a row. The national average price of gas (as of this writing) hovered at $4.46 per gallon, a pullback of roughly 10% from the June peak of over $5.00/gal.

The next big economic data to watch will be jobless claims, scheduled for release Thursday. The news is expected to be good.

Next week, the Fed will announce its latest moves; the betting is for a rate hike of 75 basis points (bps), perhaps even 100 bps.

However, analysts are increasingly coming around to the view that the Fed can’t sustain aggressive tightening for much longer without damaging the economy. This damage would be gratuitous, because the main causes of inflation (e.g., the Russia-Ukraine war and resource scarcity) are beyond the Fed’s control.

Get ready for the “next wave”…

When we’ve put inflation and the pandemic behind us, certain companies will explode on the upside. It’s conceivable that the Fed will make a dovish pivot in 2023, which would be manna for stocks.

Now’s the time to consider new growth prospects in the rebounding tech sector. The next wave of innovation is poised to take off. As an investor, you need to get ahead of the curve.

After months of painstaking research, our experts have come up with eight mega-trend predictions. Their findings may surprise you. Click here for details.

John Persinos is the editorial director of Investing Daily.

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