One week, the U.S. enters a technical recession. The next week, markets are ripping on positive inflation data. What should investors believe?

Markets staged a strong recovery from June’s market lows — so strong that the tech-heavy Nasdaq is now considered in a bull market (20%+ gain).

These sectors lead the market after a sharp drop…

During the 2008 financial crisis, the S&P 500 fell 37%. The following year, markets bottomed and the S&P 500 ripped up 27%.

Four sectors beat the S&P 500 in 2009: Info Tech (62%), Materials (49%), Consumer Discretionary (42%) and Real Estate (28%).

Now, we’re seeing a similar trend play out in the rebound. In recent weeks, two of the worst-performing sectors have become the two best-performing sectors. Since June 16th:

• The S&P 500 Consumer Discretionary sector is up 24%.
• The S&P 500 Technology sector is up 20%.

Investors like XML Financial Group Partner Eric Wightman cut his exposure to defensive industries (i.e., consumer staples) and added to tech in July (WSJ). But not all investors are on the same page…

Big banks don’t believe a bottom is in yet…

A Wolfe Research survey last week showed 75% of participants saying the S&P 500 hasn’t bottomed yet. Big banks, including Morgan Stanley, also think it’s too soon to call a bottom — expecting high labor costs to drag company earnings lower (Insider).

What do the earnings say? Over 90% of S&P 500 companies have reported earnings and share one takeaway: stocks are holding up better than expected.

• Of the companies that gave forecasts for the next quarter, 58% lowered future forecasts — below the 10-year 67% average.
• Even companies that reported surprising negative earnings haven’t fallen as much as they would historically.

But unexpected factors can still move markets lower, including rising inflation, a more aggressive Fed and tensions escalating between Taiwan and China.

Investors: The signal that the worst is over

According to CFRA’s Chief Investment Strategist, when markets recover 50% of their losses in a bear market, they don’t make new lows again in that cycle (BBG).

• The S&P 500 level to watch: 4,232. At this price, the market would have recovered 50% of its losses — a signal that the bear market is nearing an end.
• Yesterday, the S&P 500 briefly broke above this level — before finishing the day at 4,207.

Sometimes, it’s better to drown out the noise and just continue to dollar cost average your way into the market. One less thing to worry about.