Stocks closed sharply higher on Friday, and sharply higher for the week.

That makes it 4 up weeks in a row for the S&P, Nasdaq, and the small-cap Russell 2000 index. And 3 out of 4 weeks for the Dow.

I should also point out that both the Nasdaq and the Russell 2000 exited their bear market last week (Wednesday, 8/10 for the Nasdaq, and Friday, 8/12 for the Russell), and entered a new bull market.

Just like a -20% decline from the highest close marks the end of a bull market and the beginning of a bear market, a 20% increase from the lowest close marks the end of a bear market and the beginning of a bull market.

From their lowest close in June, the Nasdaq has rallied 22.6% while the Russell has rallied 22.2%.

The S&P has not yet exited their bear market. But they are up an impressive 16.7% since their June lows.

The Dow never entered a bear market, just a correction. But they too have seen an impressive rebound gaining 12.8% since their lows were put in.

There's still plenty of ground to cover for the indexes as the Dow is still down -8.26% from their highest close, the S&P is down -10.8%, the Nasdaq is down by -18.8%, and the Russell is down by -17.4%.

But it's been a spectacular rally.

Once the June lows were put in, it became clear that the worst-case scenario of a deep and prolonged recession were not likely to happen. And the back-to-back quarters of negative growth would very likely mark the end of the recession (before it was even officially declared one).

That became clearer after a series of economic reports showed the resiliency of the economy and strong aggregate demand. The Fed projected full-year GDP at 1.7% (so we were back to seeing positive growth, not negative). The Employment Reports continued to impress, not the least of which was the latest blowout jobs number two Fridays ago. And last week's CPI and PPI reports show that inflation, while still at roughly 40-year highs, has finally begun to abate. Throw in another better than expected earnings season, and you have all of the ingredients for stocks to soar. And they have.

As I remarked last week, that doesn't mean stocks are going to go straight up from here. There's likely to be plenty of bumps along the way. But it does suggest the worst may be over.

In the meantime, with earnings season winding down, traders will turn their attention back to inflation and interest rates. And growth, given the near $1 trillion in additional monies to be spent between the CHIPS Act and the Inflation Reduction Act.

But that could also be a double-edge sword as ramping up growth, while the Fed is trying to slow it down, could mean more inflation, not less. And force the Fed to raise rates even higher than expected. Hence the debate in the coming weeks and months.

For now, the worst definitely appears to be over. And forecasts for a strong second half have gotten off to a prophetic start.

See you tomorrow,