The S&P 500 (SPY) appears to be on the brink of a major break. Some even think that the new bull market has already arrived. 40-year investment veteran Steve Reitmeister says “bullshit”. His latest market commentary below explains why incorporating a game plan to generate profits even when the market goes down. Read on below for the full story.
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It’s been about 40 years since investors faced high inflation as the cause of a recession and a bear market. And yet we’ve had 5 bear markets since that time.
The point is that the majority of today’s investors have either never seen inflation cause a recession…or it’s so far back in the memory banks that they don’t know how to properly respond to the available information. This begs us to get back to KISS investing.
Instead of what it usually means: Keep it simple stupid
In 2023 we will go with: Keeping inflation separate Stupid
The rationale for this gem of investment wisdom will be fully elucidated in this week’s Reitmeister Total Return commentary.
Market Commentary
There have been quite a few joyful bear market rallies over the past year, based on the idea that inflation was cooling… the situation.
I feel like the same set up is happening now in their February 1st rate increase decision and announcement. And that’s why I remain bearish even if the S&P 500 (SPY) flirts with a breakout above the long-term trend like (aka 200-day moving average) @ 3,978.
Yes, you could say we are closed above for 2 consecutive sessions. Still, it’s hard to call it a breakout when the psychologically important 4,000 level looms high. Until we break above that major hurdle, the bears are still in control.
Back to the KISS theme: Keeping inflation separate Stupid
Bulls Remain About The Severity Of The Fed’s Higher Rate Mantra “a long time”. I feel that message will again be shouted from the rooftops at their next meeting on February 1st leading to another stock sale.
To be clear, inflation is slowing down. No two ways left. However, persistent wage and housing inflation will see the Fed maintain its restrictive policy for some time to come, which will only increase the likelihood of a recession in the first half of the year.
And in recent weeks, several Fed officials have been quoted as repeating these higher rates for “a long timemantra. So does Chairman Powell. So the idea that only a few weeks later on February 1st they would say the long time is over now is on the verge of insane.
So if that message comes through loud and clear in a few weeks, we’ll likely see a pullback from recent highs, just like we did in mid-August and early December. Therefore, I remain quite bearish.
However, that really misses the main point of today’s commentary, which we’ll look at now. That a focus on inflation completes the complete miss of the much more important signals coming from the economy.
That we do indeed have an economy teetering on a recession. And that should have a MUCH BIGGER impact on investor decision making than inflation.
You’ve heard me write enough about the deteriorating economic outlook to cause carpel tunnel syndrome. So today I’m going to lean on one of the industry heavyweights to explain why the market outlook isn’t just about inflation. And why it needs to be separated from the larger recession issue that is usually at the center of the bull/bear debate… and is likely to become central again in time as investors realize their focus on inflation was wrong.
I’ve often quoted John Mauldin in the past for breaking down so well”shakyeconomic concepts to make it understandable. He was at his best again this week with his article: The Punchbowl is gone.
The title is mean to say that the good times brought to the economy by easy money policies are now over. And so the road from here is harder for the Fed, companies and yes, investors.
In this article, he shares many thoughts he gathered from other leading investment thinkers. So now I’m going to share the best of that article to complete our understanding of the road ahead (spoiler alert: still pretty bearish).
“…bond market wizard Jeff Gundlach puts the probability of a recession this year at 75%. That didn’t seem like much…”
Samuel Rines from CORBU adds; “No one wants to say: ‘a recession is fine.’ But the FOMC strongly suggests it.
“Could there be even worse conditions? Certainly. Changes in Fed policy have lagged effects. But from the FOMC’s perspective, the current strategy seems to be delivering the desired benefit (lower inflation) without any unwanted consequences (unacceptably high unemployment or credit market collapse). That gives them room to keep going.”
David Rosenberg sees a 100% chance of a recession this year for the following reasons: “The seeds for the 2023 recession were sown some time ago by the relentless decline of the Conference Board’s leading economic indicator, which has now been running for nine consecutive months. decreased. The data goes back to 1959 and I can tell you that we’ve never seen a string of weakness like this in the past, with a 5.6% year-on-year contraction over such a time frame, which within a quarter or two predicted recession. . Call it nine to nine back to fifty nine. The recession is staring us in the face (and if it’s so ‘priced in’, why is the consensus calling for positive EPS growth for next year?).”
Tuesday provides further evidence of the deteriorating economy with the NY Empire State Manufacturing report plummeting to -32.9. The lowest level since May 2020, when Covid ravaged the economy. This and Chicago PMI are considered the most influential of the regional manufacturing reports and both show poor health.
So yes, bulls entered 2023 in the lead thanks to a combination of New Year’s optimism plus signs of moderating inflation. And yes, they can hold the reins a little longer as FOMO creeps higher and higher.
Let’s summarize.
It seems rather unwise to join the bull party now that the likelihood of a recession is increasing. And the same could be said for getting bullish on hopes of a February 1 Fed pivotst. This seems downright imaginative given the facts in hand.
Therefore, I remain bearish at the moment. I even added a 3X inverse ETF to my portfolio late last week when stocks met with resistance.
Going down makes more sense than going up. Act accordingly.
What to do now?
Discover my special portfolio of 10 easy trades to help you generate profits as the market continues to slide into bear market territory.
This plan has worked wonders since it went into effect in mid-August, generating hefty returns for investors as the market tumbled.
And now is a good time to reload as we face another bear market rally before stocks hit even lower lows in the weeks and months to come.
If you’ve successfully navigated the investment waters in the past year, you can ignore it.
However, if the bearish argument shared above has you curious about what happens next…consider getting my update”Bear Market Game Plan” which details the 10 unique positions in my timely and profitable portfolio.
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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 Stocks. Year-to-date, SPY has gained 4.01% versus a percentage increase of 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.
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