Determining the bottom of the bear market is much easier in retrospect than doing it in real time. This is because the stock market (SPY) offers many impressive rebounds that give the illusion that the worst is over … just before it falls to even lower lows. Therefore, price action is a complicated way to determine the fund. Which brings us back to fundamental attributes like what is happening with inflation and the economy to determine our path forward. This will be the focus of our discussion in this week’s comment …
Please enjoy this updated version of my weekly review.
Determining the bottom of the bear market is much easier in retrospect than doing it in real time. That’s because there are so many impressive rebounds that give the illusion that the worst is over … just before it falls to even lower lows.
Therefore, price action is a complicated way to determine the fund. Which brings us back to fundamental attributes like what is happening with inflation and the economy to determine our path forward. This will be the focus of our discussion in this week’s commentary.
The truth is that it is very difficult to assess the fund only from the action of prices. Just look at the downward process of previous bear markets to show how difficult it is to do it again. And why investors are so frequent towards “sucker rallies“before the true background is found.
This brings us back to an exploration of the future prospects of the economy and what this means for stock price valuations.
Because the fall of the economy> the fall of profits> the fall of PE levels> stock prices VERY LOW.
Right now it looks like we have just entered a recession. Technically speaking, this happens when you have 2 consecutive quarters of negative GDP.
Well, the first quarter was a surprisingly bad -1.6% that many investors abandoned because the early projections for the second quarter looked pretty healthy.
But many of the subsequent economic reports have been well below expectations and now the Atlanta Fed’s now GDP estimate has fallen to -1.2% for the current quarter. So, except for some miracle, we are already in the middle of a recession.
This is the image of the here and now. The key is what goes on. So then we need to think about the battle over the Fed’s rise to fight inflation.
The Fed has simply been wrong about inflation. For a long time they talked about it being transient and did nothing. They now come to the rescue TOO LATE and therefore raise rates at the fastest rate in modern history.
The full awareness of this mistake is what made investors fear that the Fed would gladly trade in a recession to tame inflation. Thus, the correction that began in January, and was confirmed as a bear in mid-June, was actually a good read of the ominous tea leaves.
All signs pointed to a worsening recession and tougher moves by the Fed until we had a good sign of relief on the inflation front.
I’m talking about the very timely fall in commodity prices, which is pretty evident in this year’s commodity price chart to date below.
This decrease in inflationary pressures (including lower prices at the petrol pump) is the number 1 reason why 3 weeks have passed since the lows of the bear market were explored. In fact, today represents the second time in a row that the S&P 500 (SPY) is closing again above bearish market territory (3,855), with some reflection on whether that bearish market is over.
The equation to explain this logic of the end of the bear market is as follows:
Inflation reduction> Fed less aggressive> Less damage to the economy> Soft landing> Surface bearish market> The bullish market returns in the second half of the year.
Sounds good right?
This is plausible and certainly everyone’s favorite outcome, as we all enjoy bullish markets above bearish ones. Unfortunately, the odds of worsening economic conditions make more sense with lower lows along the way.
Consider this. Like economic expansion and a bullish market, it is a long-term process that takes time to develop. The same goes for a recession and a bear market.
We are only 6 months into this process, which takes an average of 13 months to complete. At this stage there are already too many things in motion that will cause additional negative effects. That is, the loss of jobs.
Reity, you’re kidding. The Government Employment Report came out today and showed many more jobs added than expected. You must be smoking something fun to see a problem here.
As has been shared with you many times before, employment is a delayed indicator. Like a smoke alarm that rings AFTER the house has already burned down.
However, there are cracks that appear in the employment foundation if you look at other key reports. For example, weekly unemployment claims have increased almost every week for 3 months. Any subsequent report close to 300,000 claims per week will be a real wake-up call for other investors.
The following is Challenger’s monthly job cuts reports showing the move in the number of corporate layoffs announced. The June report announced on Thursday was 58.8% higher than in May with a note saying:
“Employers are beginning to respond to financial pressures and the slowdown in demand by reducing costs. While the labor market is still tight, this constraint may begin to ease in the coming months.”
This means that the wheels are moving so that the occupation is the next domino to fall. And this equation is like this:
Loss of employment> lower income> lower spending> deepening recession> lower business profits> lower stock prices
To be clear, I am open to the possibility that the image of moderating inflation may win the day leading up to a white flag for this bear market.
However, given my background in economics and over 40 years observing its interrelationship with the stock market (SPY), much smarter money is going through the downward recession … and the bear market as well low.
What to do next?
Right now, there are 6 positions in my hand-selected portfolio that will not only protect you from a nearby bear market, but will also lead to big gains as stocks go down.
This strategy fits perfectly with the mission of my Reitmeister Total Return service. This is to provide positive returns …even in front of a roaring bear market.
Yes, it is easy to make money when the bullish market is in full swing. Anyone can do it.
Unfortunately, most investors do not know how to generate profits as the market goes down.
So let me show you the way with 6 trades perfectly suited to the current conditions of the bear market.
And then along the way we will take our profits from these positions and start fishing for bottom to look for the best stocks to recover as the bullish market makes the legitimate return.
Come find out what my 40 years of investment experience can do for you.
Also, have immediate access to my full portfolio of 6 timely trades that are ready to stand out in this difficult market environment.
Click here for more information>
I wish you a world of investment success!
Steve Reitmeister… but everyone calls me Reity (pronounced “Righty”)
Editor, Reitmeister Total Return & POWR Value
Shares of SPY closed at $ 388.67 on Friday, down -0.32 (-0.08%). To date, SPY has fallen -17.56%, compared to a% increase in the S&P 500 benchmark during the same period.
About the author: Steve Reitmeister
Steve is best known to the StockNews audience as “Reity.” Not only is he the CEO of the company, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his latest articles and stock choices.
The mail The bottom of the bag? Think again … appeared first StockNews.com