Bear markets require more patience than bull markets. That’s because the rallies are so impressive that it invites you to only get back on board before crashing to new lows. Truly a “siren song” for investors. Let 40-year investment veteran Steve Reitmeister explain why stocks (SPY) will go lower… and why it may take longer than you think. Read the rest below.
(Enjoy this updated version of my weekly commentary from the Reitmeister Total Return Newsletter).
Shares rose on Tuesday and the investment media (CNBC and the like) are sharing details on why that is the case. And why you should consider being bullish.
Note that stocks fell on Monday and that same media is making scary headlines telling you why you need to be bearish.
The investment media doesn’t care about accuracy. Nor to help you invest better. They just want maximum attention for their information to sell advertising space.
This means there is no accuracy… no consistency… no value!!!
What should you do instead?
Read on below for the answer…
No doubt today’s FOMO rally seemed very tempting to participate in. It just kept rolling higher by the minute because computerized traders are generally momentum based and just piled them on top of each other.
Unfortunately, today’s gains have little to do with the long-term view… which remains bearish.
Just nothing has happened to make anyone in their right mind think the bear market is over, as inflation is a deadly economic disease that is still far too virulent. On top of that, you have a Fed doing everything it can to quell inflation through aggressive rate hikes that are sure to dampen an already weakened economy (-1.6% in Q1 and Q2 GDPNow estimated at – 1.5%).
This process is far from over. Therefore, the economic downturn is far from over. Therefore, the share price decline is far from over.
This is a very short version of the much more in-depth discussion I had on this topic on July 11the Platinum members webinar (watch it now here >)
Note that I originally felt that this bear market was sometime in the 2 . would endnd half of the year, making it a shorter market than the average 13-month bear market. (Measured from the previous peak to the bottom of the bear market).
That outcome may still be possible. Unfortunately, the past month of hovering above the recent bottom is starting to make me think that this could be more of a protracted bear market like the one we endured from 2000-2003.
The big similarity is that in both scenarios, stock valuations were stretched a bit for the overall market. Especially true for the most exciting growth stocks that soared to great heights only to plummet back to Earth.
I know some of you think that valuations were much more extreme during the technology bubble of the late 90s and so not a good comparison. However, if you look at the S&P 500 (SPY) chart below, you’ll see that the market’s overall PE was quite similar, showing that valuations were stretched too much across the board.
I’ve shown this valuation slide on webinars in the past, much to everyone’s shock, how eerily similar the PE peak in early 2022 was to the technology bubble in 2000. And yes, we’ve come down from that peak… but still well above it. the long-term average of 15.5, where we should go below at the bottom of the bear market.
As we appreciate the similarity in valuation heights, we can now understand how the current market’s path may mirror what we saw in 2000 to 2003. That is a long, winding road with many drops… followed by many false rallies until the final bottom was found about 3 years later in the spring of 2003.
So as far as I’ve talked about the modern market moving faster than in the past… mainly because of the rise of computer based trading… maybe it’s the long slow fire like 2000-2003.
No, this is not the base case at this point. Still think it will work faster than that. It’s interesting to think about the possibility, though, as each bear market has its own unique features. Just open your eyes to the possibilities and increase everyone’s patience for the winnings in our inverse ETF positions that don’t fill up like a jackpot right away.
Reity, is it possible that the bear market is over?
Yes, it is possible. But it is VERY unlikely for the reasons already mentioned.
Again, my 7/11 webinar presentation goes into detail about the nature of the bear market bottoms. And how many drops/rallies/drops cycles it takes before the final bottom is found. So there’s really nothing special to me about today’s bounce.
Now add to that the fact that we are coming out of a kind of stock valuation bubble thanks to the low interest rates TINA (There is no alternative….for stock investment environment of recent years). And just like the last time we had outrageous valuation levels from 2000 to 2003, it may take longer to get ALL AIR out of the bubble.
This knowledge gives me the necessary patience not to get pulled into these sucker rallies at first glance. However, there is a limit to that patience as the bear market bottoming process is different every time and there is always the possibility that the next bull market will come along.
In my book, I wouldn’t seriously consider a bottom until we test the 100-day moving average for the S&P 500 (SPY), which currently stands at 4.148. The interesting thing about this place is that it matches where the stock bounced to in early May after the first time we fell into bear market territory.
If I get above that 100-day moving average level coupled with serious signs of moderating inflation, I might be tempted to turn bullish again. Or at least a much more balanced portfolio than the straight up shorting of the market that we are doing now.
It is funny. During a bull market, investors have immense patience to wait through all kinds of pullbacks and corrections for the next leg higher.
But during the bear market… there is virtually no patience to be found. A bit hypocritical when you think about it as they are both long term processes that take a while to complete.
This tells us to be students of history. Valuing the economic cycle has not fully played out to the negative side, such as a drop in revenues and job losses.
When those shoes fall… and they will… then investors will quickly give up all false bullish ambitions. This will produce wave after wave of downward force. And just when it seems like there’s absolutely no hope left…it’s rock bottom…and that’s when the next bull market will pop up.
When you appreciate these lessons from history, it’s hard to make a serious statement that we’ve already found the bottom and that this is ripe ground for the next long-term bull market to grow. For that we need more cons. And that means we need more time.
Be patient my friends. This may take much longer than previously believed. But still says our bearish portfolio strategy is still on the right side of history.
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 stock moves lower.
Like the large gains our members enjoyed in June when the market finally tumbled into bear market territory.
This unique 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.
Come and discover what my 40 years of investment experience can mean for you.
And access my full portfolio of 6 timely trades to not only survive…but thrive in this unforgiving bear market environment that is far from over.
I wish 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. Year-to-date, the SPY is down -16.80%, versus a % increase in the benchmark S&P 500 index over the same period.
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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