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Bear market: Has Wall Street priced in a full-blown recession?

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Yahoo Finance’s Myles Udland joins the Live show to discuss bear market rallies as well as the outlook for a recession.

Video Transcript

BRAD SMITH: Let's talk all about it with our senior markets editor, Myles Udland. Myles, I mean, we've been having the conversation of whether this is kind of a dead cat bounce within this broader bear market that we're certainly in the throes of right now.

MYLES UDLAND: Yeah, you know, it's interesting. Jared Blikre brought up something in one of our Slack channels earlier today about how as bear markets progress, the bounces actually get larger in magnitude, more violent, I guess you could say. So I think we've had, what, a 12%, 15% bounce off the lows before this latest fall into bear market territory. And if history is any sort of guide, we should be looking for even larger bounces as we progress through whatever period we're in right now. But of course, Julie, people will disagree on whatever that period might be.

JULIE HYMAN: Right, they'll disagree on the period it might be. And there's also the idea that-- have we seen the bottom yet? That's what people like to look for, right? There was some talk that maybe last week, we saw this sort of exhaustive selling. But if you also look at history and you look at the size of bear markets-- forget about the duration for a minute-- they do tend to be a little deeper than the sort of, what is it, 22% or so that we've seen thus far.

MYLES UDLAND: Yeah, was it 34%? 35% is the-- is it the median or the average? Because that matters. But I think look, the conversation that's really come up on Wall Street in the last couple of weeks is, like, have we priced in a full recession? And the, quote unquote, "full pricing in" is about that 35% level. So OK, we have 12 or more percentage points to go ish from here.

But I think ultimately, you look at, like, the last 72 hours of notes. And I know we'll talk about this with Brian Cheung a little bit later on today. Everyone now is on this, well, recession chances are up. Recession chances are up. And it has this feel a little bit of-- it's like economist capitulation. They're not investors, but there is, like, this Wall Street economists view that they have all now accepted that we are going into recession.

The market has been saying we're going into a recession, I think, for the last six months, really. And so if you really want to torture the contrarian view here, you can say, well, it's all adding up. It's finally coming back. Everyone is so bearish. B of A sentiment is at 0. Everyone is so bearish that maybe it's now bullish. But as we just noted, those bear market rallies tend to be larger in magnitude as we progress through. So certainly something to be on the lookout for.

BRAD SMITH: Well, we've already surpassed the Cardi B barometer threshold for what a recession--

MYLES UDLAND: She was early, though.

BRAD SMITH: She was early to the game.

MYLES UDLAND: That was, what, two or three weeks ago at this point?

BRAD SMITH: Yeah, exactly. And so I think at this point in time now for consumers who are looking across higher prices, who are navigating supply chain issues, because they're seeing it in stores that they go into, where would we-- should we be looking into the data right now to really get a sense of how deep this recession might be?

MYLES UDLAND: Well, what's interesting on that supply chain issue is if you look at the number of ships waiting to be offloaded at the Port of LA, for example, that's down over 50% in the last couple of weeks. You look at what Lennar told us this morning. They are starting to see some supply issues finally ease a little bit.

And so back to that economist capitulation, sort of half-baked take, we are-- by the time everyone, quote unquote, "everyone" is talking about how you can't buy anything, everything is so expensive, that might be the moment that finally some of those pressures start to alleviate. And if the tech sector is any kind of a leader, which it was on the way up, and it's a leader on the way down, the pressure in the labor market are also really starting to build.