Stocks struggled, with the S&P 500 falling more than 1% on Tuesday. This marks a reversal from the market rebound in July, with the index rising 3.6% for the month through Monday’s close. Fall for the heebie-jeebies about the Federal Reserve’s commitment to tightening reporting and its pessimistic results amid fears of a recession.

On the eve of the Fed’s latest expected rate hike, all of this makes July’s market rally look like a bearish rally – a temporary reprieve from a negative trend.

With inflation above 9%, bears are casting doubt that inflation can soon be licked, allowing the Fed to ease its rate hike. The bears argue that investors got it wrong. Morgan Stanley Wealth Management CIO Lisa Shallett told clients in a note that the Fed is likely to raise interest rates for some time.

“The latest bear market rally in our view is full of wishful thinking,” she wrote. “We are concerned that equity investors are confusing a spike in Fed policy acceleration with the end of Fed tightening. History suggests that inflation must peak before the Fed stops tightening.

The possibility and timing of a recession is once again weighing on investors. Economist Nouriel Roubini, head of Roubini Macro Associates, said the odds are very strong for a deep recession, not the mild economic slowdown many expect. Blame the high debt loads that have been accumulated due to a long period of low rates, as well as chronic supply problems due to the pandemic, Roubini told Bloomberg TV.

To underline these bitter prospects, two American business giants have had bad news.

Walmart said its second-quarter earnings would plunge 8% to 9% and fall 11% to 13% for the year. The culprit: inflation, which the retail chain said was hurting its sales. The stock slipped 8% on Tuesday.

Meanwhile, General Motors missed Wall Street’s profit estimates because, it said, parts shortages had prevented it from shipping nearly 100,000 vehicles to the sales pitch. GM shares fell 3%.

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