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Bottom of the stock market? Think again…

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Determining the bottom of the bear market is much easier in hindsight than doing it in real time. That’s because the stock market (SPY) offers a lot of impressive bounces that give the illusion that the worst is over… just before you plunge to even lower lows. Price action is therefore a difficult way to determine the bottom. That brings us back to the fundamentals, like what happens to inflation and the economy to determine our way forward. That will be at the heart of our discussion in this week’s commentary.….


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Please enjoy this updated version of my weekly commentary.

Determining the bottom of the bear market is much easier in hindsight than doing it in real time. That’s because there are a lot of impressive bounces that give the illusion that the worst is over…just before you sink to even lower lows.

Price action is therefore a difficult way to determine the bottom. That brings us back to the fundamentals, like what happens to inflation and the economy to determine our way forward. That will be at the center of our discussion in this week’s commentary.

Market Commentary

The truth is that it is very difficult to measure the bottom by price action alone. You only need to look at the bottoming process of past bear markets to show how difficult it is to end it. And why investors are so often attracted to “sucker’s ralliesbefore the real bottom is found.

This brings us back to exploring the future outlook for the economy and what that means for stock price valuations.

Because declining economy > declining earnings > declining PE levels > WAY LOWER stock prices.

Right now we look very much like we just entered a recession. Technically speaking, that happens when you have negative GDP for 2 consecutive quarters.

Well, Q1 was a surprisingly bad -1.6% that turned many investors off as the early Q2 projections looked quite healthy.

But far too many of subsequent economic reports have fallen well below expectations and now the Atlanta Fed’s GDP Now estimate has fallen to -1.2% for the current quarter. So barring some miracle, we are already in the midst of a recession.

That is the picture of the here and now. The key is what happens in the future. That’s why we need to think next about the Fed’s tough fight to fight inflation.

Plain and simple, the Fed was wrong about inflation. They talked for a long time about it being transient and did nothing. Now they are coming to the rescue WAY TOO LATE, raising rates at the fastest rate in modern history.

The full realization of this mistake made investors fear that the Fed would be happy to trade in a recession to contain inflation. So the correction that started in January and was confirmed like a bear in mid-June was actually a good read of the ominous tea leaves.

All signs pointed to a worsening recession and tougher Fed action until we got a welcome sign of easing on the inflation front.

I am talking about the very timely decline in commodity prices that is quite evident in the commodity price chart below from this year so far.

This easing of inflationary pressures (including lower gas pump prices) is the #1 reason it’s been 3 weeks since we explored bear market lows. In fact, today represents the second consecutive time the S&P 500 (SPY) has returned above the bear market area (3,855), with some doubt as to whether this bear market is indeed over.

The equation to explain that end of bear market logic goes like this:

Inflation easing > Less aggressive Fed > Less damage to economy > Soft landing > Shallow bear market > Bull Market returns in second half of the year.

Sounds good right?

This is plausible and undoubtedly everyone’s preference as we all enjoy bull markets over bears. Unfortunately, the likelihood of a deterioration in economic conditions makes more sense with lower lows on the way.

Consider this. Just as an economic expansion and a bull market is a long-term process that takes time to unfold. The same goes for a recession and a bear market.

We are only 6 months into that process, which takes an average of 13 months to find its way to the bottom. At this stage there are too many things in motion that cause additional negative effects. Namely job losses.

Reity, you’re kidding. The Government Employment Report came out today and many more jobs were created than expected. You must be smoking something funny to see a problem here.

As shared with you many times before, employment is a lagging indicator. A kind of smoke detector that goes off AFTER the house has already burned down.

However, cracks can be seen in the employment foundation if you look at other key reports. For example weekly Unemployment Claims have been rolling higher almost every week for 3 months now. Any subsequent report that gets closer to 300,000 claims per week will be a real wake-up call for other investors.

The next is the month Jobs at Challenger reports showing movement in the number of announced layoffs at companies. The June report announced Thursday was 58.8% higher than May, with a note saying:

“Employers are starting to respond to financial pressures and declining demand by cutting costs. While the labor market is still tight, that tightness could begin to ease in the coming months.”

This means the wheels are moving, so employment is the next domino to fall. And that comparison goes like this:

Job losses > lower income > lower spending > deepening recession > lower corporate profits > lower share prices

To be clear, I am open to the possibility that the moderating inflation picture could win the day, leading to a white flag for this bear market.

Given my background in economics and over 40 years of looking at the interrelationship with the stock market (SPY), the much smarter money rides on the recession getting lower…

What to do?

Right now, there are 6 positions in my hand-picked portfolio that will not only protect you from an impending bear market, but also lead to big gains as the stocks fall.

This strategy fits perfectly with the mission of my Reitmeister Total Return service. That is to provide a positive return…even in the face of a roaring bear market.

Yes, it is easy to make money when the bull market is in full swing. Anyone can do that.

Unfortunately, most investors do not know how to generate profits when the market falls.

So let me show you the way with 6 trades that are perfectly suited to the current bear market conditions.

And then we’ll take our profits on these positions and start bottom fishing for the best stocks to recover as the bull market delivers the rightful returns.

Come and discover what my 40 years of investment experience can mean for you.

Plus, get instant access to my full portfolio of 6 timely trades ready to excel in this tough market environment.

Click here for more information >

I wish you a world of investment success!


Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
CEO, StockNews.com
Editor, Reitmeister Total returnPOWR value


SPY shares closed at $388.67 on Friday, down $-0.32 (-0.08%). Year-to-date, the SPY is down -17.56%, versus a % increase in the benchmark S&P 500 index over the same period.


About the author: Steve Reitmeister

Steve is better known to the StockNews public 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 most recent articles and stock selection.

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