Sometimes the stock market and the S&P 500 (SPY) do what you expect… and sometimes it does the exact opposite. Now with so many investors being so bearish…then it might be quite likely that things will surprise positively with the emergence of a new bull market. Steve Reitmeister, CEO of StockNews.com, offers his insights on this hot issue in today’s market commentary below.
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Tuesday was the first trading session of the new year. In a funny way, I thought it summed up the action of the past year perfectly:
Big Rise Higher > Complete Collapse > Modest Rally to Cut Losses, But Still Red in the End.
Given all that extreme volatility, it can easily leave people confused about what happens next if they just use price action as a guide. We like to rely more on fundamentals to lead the way because this is the ‘true north’ of investing.
Where are the fundamentals pointing now to start 2023? And what happens if those prospects turn out to be false?
Answering those important questions will be the focus of our first Reitmeister Total Return commentary for the new year.
Market Commentary
The baseline scenario for this year was shared in my recent presentation: Stock market outlook for 2023
That’s a regular recession that forms in the first half of 2023, with stock prices falling near the -34% bear market average to a range of 3,000 to 3,200 for the S&P 500 (SPY).
Then on Friday I shared a new comment that talked about: Best vs worst case scenario for the stock market.
The point of this new article is to prepare contingency plans if things deviate significantly from the expected plan. Now we are ready for whatever comes our way in 2023.
With all this in place, I thought an interesting discussion today would be to see what deviation from the base case scenario is most likely.
Does this mean we’re more likely to enter a much deeper bear market…or avoid one altogether?
I could make a strong case either way. But my biggest fear as an investor going into 2023 is that it could indeed be a soft landing without a recession and another bull market, as our portfolio is built to win when the market falls (thus part of the healthy gains in the early stages of a new bull market).
The fundamental reason this comes out is that there are solid signs that inflation is declining, especially in commodities. In addition, US consumers are shifting more money from products to services in the post-Covid world. This move has given manufacturers some relief in solving supply chain issues that will moderate prices going forward.
If this disinflationary story unfolds faster than expected, the Fed may end the rate-hike regime sooner and become more accommodative. This will improve businessmen’s mood to rev up the engines of the economy, which investors will welcome with another bull market.
Note that this positive case has always been a possibility. I just think the chance of going into a recession and a deeper bear market is much more likely this year.
This next part is easy to say…but a little hard to fathom at first. So stay with me and it should all make sense in the end.
Over the years I have definitely seen that the market gods love to fool as many investors as possible. It’s kind of Murphy’s law of investing that things often don’t go as planned.
This is true of the formation of most bear markets, as they emerge when far less than 50% of investors expect that outcome. And just as investors get most pessimistic, it usually turns bullish (climb the wall of worry).
Now let’s look to 2023, where I’ve never seen so many people agree that a recession and a bear market is coming. So the Murphy’s law component could indeed play the other way (soft landing…no recession…new bull on the rise).
Because as funny as the above idea is to think about… I can’t make it any more believable than my 40 years of experience reading the fundamental tea leaves that indicate that the economy and stock market will continue to evolve in early 2023.
So that remains the base case scenario with the contingency plans already outlined in my last comment: Best vs worst case scenario for the stock market.
The shortened version of that plan is to remain bearish for now, but keep a close eye on inflation, economic growth and statements from the Fed. If things improve and we break above the 200-day moving average for the S&P 500 again, then it’s time to shed the bear suit and become more bullish.
Turning to the first economic report of the new year, we saw the PMI Manufacturing fall from a weak 47.7 to an anemic 46.2. This is the worst figure since May 2020, when Covid fresh hit the scene and the economy collapsed.
One report does not make a trend. So let’s continue to watch the other notable economic announcements in the coming days such as
1/4 ISM Production and FOMC Minutes
1/6 Government Work Situation & ISM Services
1/12 Consumer Price Index
1/18 Producer Price Index and Retail Sales
The more it indicates that inflation is still too high and/or the economy is faltering…the more bearish the outlook. And vice versa.
So in the future, continue to follow my comments to stay on top of the action in real time and we will make the necessary changes to our trading plan to stay on the right side of the action.
What to do now?
Check out my brand new presentation: “Stock market outlook for 2023” covering:
- Why 2023 a “Jekyll & Hyde” year for shares
- 5 warnings indicate the bear will return in early 2023
- 8 trades to make a profit on the way down
- Plan to Bottom Fish @ Market Bottom
- 2 Trades with 100%+ upside potential as new bull emerges
- And much more!
Watch now: “Stock market outlook 2023” >
Wishing you a world of investment success!
Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
CEO, Stock News Network and Editor, Reitmeister Total Return
SPY shares fell $0.26 (-0.07%) in after-hours trading on Tuesday. Year-to-date, SPY is down -0.42% versus a percentage increase in the benchmark S&P 500 index over the same period.
About the author: Steve Reitmeister
Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the company, but he also shares his 40 years of investing experience in the Reitmeister Total Return Portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.
The mail “Murphy’s Law” stock market in 2023? appeared first on StockNews.com
