What it will take for stocks to make a new bear market low

Ned Davis Research indicates that the S&P 500 is nearing its record high and a recession would likely be required to significantly reverse its course, citing a resilient U.S. economy with strong job growth and industrial production near all-time highs. Despite some economic headwinds like weaker housing starts and retail sales, and geopolitical risks in the Middle East, the firm does not foresee a recession in the second half of the year. Separately, Wells Fargo upgraded Mondelez to overweight, based on strong execution and growth potential.

Analysis

Ned Davis Research projects continued resilience for the S&P 500, which is currently less than 3% below its February record high, suggesting a recession would be necessary to trigger a significant downturn. This outlook is supported by a U.S. economy that has remained robust despite higher tariffs and Middle Eastern geopolitical tensions, evidenced by May's stronger-than-expected addition of 139,000 jobs and U.S. industrial production nearing its all-time high by just 0.5%. The firm's chief macro strategist, Joe Kalish, does not anticipate a recession in the second half of the year and notes the stock market's avoidance of a bear market, despite an 18.9% decline from its all-time high during the peak of the global trade scare, may itself be a positive leading economic indicator. However, emerging weaknesses, such as May's unexpected declines in housing starts and retail sales, alongside the potential for escalated conflict between Israel and Iran involving U.S. intervention, present notable risks to investor sentiment and economic stability. Separately, Wells Fargo has upgraded Mondelez (MDLZ) to overweight, citing it as one of the best execution stories in Staples. The upgrade is predicated on anticipated superior long-term growth driven by market share gains in developed economies, white space opportunities in developing markets, and a proactive M&A strategy. While Mondelez confronts historical inflation in 2025, Wells Fargo highlights the company's strong pricing execution and expects inflation to temper in 2026, paving the way for an earnings recovery.

Key Decisions for Investors

• Given the S&P 500's proximity to record highs and the assessment that only a recession would cause a major pullback, investors might consider maintaining equity exposure but should closely monitor leading economic indicators for any signs of a downturn.
• The divergence between strong labor and production data versus weaker housing and retail figures suggests investors should be selective, potentially favoring resilient sectors or companies with demonstrated pricing power, while remaining vigilant about geopolitical developments in the Middle East.
• For those seeking exposure to the Staples sector, Mondelez (MDLZ) presents a potentially attractive opportunity due to its strong execution, diversified growth drivers, and Wells Fargo's positive outlook on its ability to navigate inflationary pressures and achieve earnings recovery.