At its lowest point in June this year the main share market index, the ASX200, was down 16% — which is very close to what investors classify as a "Bear market", a peak to trough fall of 20% or more.

The share market is now down by roughly 6 to 8%.

That's remarkable considering the wall of worry facing the market: war in Ukraine, the pandemic, skyrocketing inflation, rising interest rates and slowing global economic growth.

So why are shares bouncing back? And can it last, or are there much bigger stock market falls around the corner?

The answers matter to all Australians, but especially to anyone with superannuation who is about to retire or younger Australians who are investing in shares to super-charge their home deposits.

The performance of financial markets also has a substantial impact on a country's living standards.

And the answers — or pointers to the answers — are beginning to trickle in.

Confession season is upon us:

By law publicly listed companies are required to update the market with any information they have that may influence their stock prices.

This includes publishing half and full-year earnings reports.

It's dubbed "Confession season" because there's no escaping it and businesses may be forced to air their dirty laundry.

For example, a business may announce that an investment that fell flat or that a product launched in the preceding year failed to find a market.

This may prompt investors to rethink what the company's worth (its stock price).

Crucially too, though, it's a time for a listed stock to provide what's called "Forward guidance".

That is, the company announces with all the information it has at that time how it expects to perform in the coming months.

It forecasts revenue, costs, and profit for the next six to 12 months and sometimes beyond that.

Some companies have already reported and from today we'll get profit updates and forward guidance from the Commonwealth Bank, Macquarie Group and Telstra — some of the country's biggest employers.

There are weeks of corporate results to be delivered, but these next few days will set the tone until other large companies show their hand.

We will start to get a sense of how corporate Australia is performing and that's crucial information given the economic environment we're in.

What this tells us:

Last week the Bank of England announced UK inflation — or the cost of living — was set to hit 13%.

Britons, the bank warned, were about to endure the sharpest fall in living standards since World War II.

Prime Minister Anthony Albanese tried to reassure households on Friday that Australia was not following Britain down that inflation path.

But financial pressures remain for millions of Australian households as they struggle with sluggish pay rises and higher prices for petrol, energy and food, and now elevated borrowing costs.

The argument has been that households have large cash buffers — to the tune of $260 billion — to draw upon, but there are obvious limits to how long households can rely on those buffers.

The $260 billion question then becomes: "How does corporate Australia see households coping?"

Corporations analyse how well households are coping because their bottom lines are directly influenced by the financial health of households.

Companies will provide detailed assessments about how tighter monetary policy (higher interest rates) is affecting their businesses now and how they're expected to in the months ahead — especially the Commonwealth Bank.

Yesterday the National Australia Bank (NAB) revealed the outlook for its credit quality remains "benign" but it cautioned that the impact of rising interest rates was offset by higher funding costs.

That's just a way of saying the bank remains under pressure to keep raising interest rates.

This is crucial in terms of the economic outlook.

Why it matters:

Shoppers will need to keep spending in the face of rising living costs and higher interest rates, fuelled by RBA rate rises or higher offshore funding costs for the banks.

Roughly 60% of economic growth depends on growing consumer spending, and that consumer spending drives business activity.

The latest data from the NAB and the ANZ suggests, so far, that businesses remain in a strong and profitable position at the expense of consumers.

A simple average of nominal business turnover indexes calculated by CommSec shows the "All Industry" index increased by 20.8% over the past year, the fastest growth in 13 months.

That means businesses, generally speaking, are doing quite well.

Consumers, on the other hand, are downright miserable.

The Westpac Melbourne Institute of Consumer Sentiment fell by 3% from 83.8% in July to 81.2% in August.

"This reading is on a par with the lows of COVID and the Global Financial Crisis, although still well above the lows during the late '80s/early '90s recession," Westpac Chief Economist Bill Evans says.

This may be because businesses are driving up prices as much as they can and shoppers are willing to oblige them in the process.

"All price and cost measures were at record highs in July together with capacity utilisation," CommSec noted.

The key question is : When will this trend break down?

The answer is it may be when asset markets, including property and shares, fall on the back of higher interest rates.

To date, the argument has been that households have loosened their purse strings in recent times because they "feel" wealthier, as opposed to being confident to spend due to higher wages.

Where are financial markets headed?

Financial markets are waiting for more companies to reveal their profits, but at the same time, analysts are cautioning big asset price falls could be around the corner.

"It's been quiet ... we could be in the eye of the storm," professional investor Henry Jennings says.

"BHP is so big now that it drives the index.

"We need a bump in iron ore to get BHP up.

"Otherwise I think we are going to go sideways for a while."

AMP chief economist Shane Oliver (Above) has overseen billions of dollars' worth of investments during his career.

"We remain of the view that shares are vulnerable to a pull-back over the next few months as central banks are still a way off from peaking and actually cutting rates," he says.

"Recession risk is still rising, and this runs the risk of significant earnings downgrades and geopolitical risk is still on the rise as highlighted by China-US tensions in the last week and the upcoming November US mid-terms."

Into the unknown:

There's a lot to digest, let's break this down neatly.

The single biggest threat to the economy and financial markets is inflation.

Businesses are so far responding to their own higher costs by raising prices, further fuelling inflation.

Households with cash buffers are dipping into their savings to help make ends meet.

There's evidence other households are beginning to cut back on some items.

The Reserve Bank is responding to rising inflation by increasing interest rates, and it will do so until it returns inflation to its "Target band" of between 2 and 3%.

It's unclear how households will respond to further monetary tightening, especially given limited or no wage growth.

Corporate Australia is now in the process of giving its best guide as to how Australian consumers will respond to the challenges ahead, and how that response will influence their bottom lines.

It may be "Quiet" because now's the time to listen — to listen outfor what's coming.

Original Story By | David Taylor