The S&P 500 closed 2.12% lower last week, right at the edge of the bear market with -20.18% drawdown YTD. The bounce out of the bear market from the previous week faded, but the selloff failed to extend to the previous lows. Technically, this could be a “higher low” – a bullish indicator (if it holds).

More importantly, the liquidity shock selloff tried to resurface as the S&P slipped back into the bear territory – bitcoin (BTC) sold-off, semiconductors (SMH) sold-off, Australian Dollar sold-off, yet, the VIX index slightly fell for the week. Thus, it appears that the liquidity risk is fading (Phase 1 selloff).

The market is now concerned that the Fed will push the economy into a recession by next summer (anticipation of Phase 2 selloff). However, it is likely that the CPI report on July 13 will show a falling headline inflation, given the sharp decline in commodities (oil, wheat, corn, oats…). Thus, the Fed is likely to be less aggressive, and might not need to cause the recession – the 10Y-3mo spread might stay positive.

Thus, it is likely that the S&P500 is in the process of bottoming out – in anticipation of the July 13th CPI report. Here is the full report.