Two quarters of negative GDP started the debate about whether the recession has already begun. The definition is not likely met, but the risks are rising, and economic growth has weakened. Using an improvement in economic activity as a signal to buy stocks has been a recipe for underperformance.

Bank earnings were worse than expected, but the core lending business remains healthy, which sparked a rally in the sector. This week a more diverse group of companies outside of primarily financials reports earnings, so it will be instructive to see if the headline earnings performance improves.

Earnings are expected to grow at 4% year-over-year but could decline after inflation for the first time since the Covid-recession. Actual earnings should exceed estimates, but forward guidance will be crucial with the current worries about the deteriorating economic outlook and cost pressures.

There was nowhere to hide in stocks in the second quarter, with the worst start since 1970. The deteriorating outlook for the economy is a significant cause of the gloom hanging over stock market sentiment. However, waiting for the economy to bottom to buy has been a mistake.