Important information: The value of investments and the income from them can go down as well as up, so you may get back less than you invest.

BLINK and you missed it. A 7% bounce back in share prices hit the buffers last week and investors are asking: was this just another short-lived bear market rally?

When good news is actually bad

The trigger for the resumption of the market slide last week was, ironically, a piece of good news. Better than expected employment data in the US (390,000 new jobs in May) reminded investors that the American labour market is red hot. That means the Fed is likely to hold its nerve when it comes to raising interest rates.

Shares fell 1.6% on Friday and were 1.2% lower for the week as a whole. Tech stocks, which crave lower interest rates, did worse - down 2.5% on the day and 1% lower over the week.

What can stop the rot?

The prospect of higher interest rates continues to cast a cloud over stock markets. But eight weekly falls in the last nine mean some investors are starting to ask: how low can shares go? Earnings are the key. With valuations down from 23 times profits to just 16 in a year, multiples have probably fallen far enough. As long as earnings continue to grow at the expected 10% this year and next.

If they do, then the S&P 500 at 4,000 looks reasonable value. If not, we might head further into bear market territory. The average drop in the 15 bear markets since the 1920s has been 34% over 17 months. When a correction has reversed course, it’s been on the back of easier monetary policy. That looks unlikely this time round.

There’ll be little guidance on the earnings front this week. The only company results of note are Wizz Air and Zara-owner Inditex. Wizz’s results will be scrutinised, not least by stranded holidaymakers hit by the half-term delays and cancellations that have soured the return to overseas travel for many.

What else is on the radar this week?

There’s more to look out for on the economic than the corporate front. China’s latest economic data today is backward looking, so we shouldn’t be too concerned by the second worst fall in the Caixin purchasing managers’ index since February 2020. It reflects the high price tag of China’s bid to eradicate Covid. More important is what happens now Shanghai and Beijing are opening up. The stock market is already looking ahead, with the CSI 300 index up 9% from its April low.

Closer to home, the European Central Bank (ECB) will most likely hold fire for one last time on interest rates on Wednesday. It wants to finish its bond-buying programme before raising rates for the first time, probably in July.

The final market-moving data release this week will be US inflation on Friday. April’s inflation was marginally down on March’s number. Another fall in May would suggest a trend. A peak in price rises from a 40-year high would take the pressure off the Fed and be welcomed by investors the world over.

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Investments in emerging markets can be more volatile than other more developed markets. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.

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