Yes, history has a way of repeating itself. Like how periods of high inflation are followed by recessions and bear markets again and again. Or how periods of high stock valuations often lead to longer bear markets like 2000 to 2003…and yes, that may be repeating itself now. Before you believe that the next bull market has emerged, you may want to read this article to understand why the odds point to more downside effects.
In June stocks dwindled.
Shares rose in July.
Stocks in August ???
To help predict the answer to that question, I offer this week’s Reitmeister Total Return commentary to chart our course forward.
Last week I wrote a manifesto about why I still think we’re in the middle of a bear market and we’re just having an old-fashioned sucker rally right now. Therefore, I continue to short the market and expect lower lows.
However, I must admit that it is possible that this is the start of the next bull market and that we will not let it slip through our fingers, leading to a bullish portfolio contingency plan. The key was relying on the proven market timing signals from my friends at TheDowTheory.com.
All that and more is laid out in this comprehensive commentary: Bear Market rally or new bull market emerging?
Then I just hosted the August Platinum Member Webinar to further develop some of these ideas. With more charts showing the commonality of bear market rallies as long and as impressive as this one before lowering the next leg.
All in all, the similarities of this market with the extended bear of 2000-2003 are starting to become clearer and why we need to be patient for that likely next leg lower;
Since then, it appears that stocks are stagnating at the same highs of two months ago.
The news media was fixated on Nvidia and Micron giving back-to-back wake-up calls to investors as the reason the rally ended. Like how Monday’s big gain of 1% turned into a loss at the end of the session.
Note that both industry giants provided troubling prospects of reduced demand for semiconductors, which is basically the heartbeat of technology. This explains the weakness in the technology sector that recently led the market higher.
Tim Biggam, editor of our POWR Options newsletter, also sees a good reason why this bear rally is running out. He shared that view in this new article: 4 big reasons why the bear rally is coming to an end
Or watch how there has been a parade of Fed governors clearly singing the same song that they think the economy is strong enough to AGGRESSIVELY raise interest rates. The last such statement came from Fed Governor Bowman where she says she won’t be surprised if another portion of a 75 basis point increase is on the way.
Understand, dear friend. The Fed is a well-orchestrated machine whose main goal is transparency. Their #2 goal is to fight inflation. And #3 is achieving maximum employment. And rightly so, they tell us transparently that there is no end to raising rates to beat the flames of raging inflation.
To me, that says we’ve been able to avoid a recession so far… but these aggressive measures by the Fed greatly increase the likelihood of a recession in the future. Not surprisingly, a recent Goldman Sachs poll shows that the majority of economists and investment strategists predict that if a recession comes, it will be in the first quarter of 2023.
Therefore, investors are right to pause here and see what comes next. If we somehow raise interest rates and the job market continues to shine… then there will be a solid foundation to move up the ranks and I’ll be happy to pick up the bullish banner.
However, when we start to see cracks in that employment foundation, it sets off a chain reaction that we discussed earlier:
Job losses > Lower income > Lower spending > Lower profits > Lower stock prices
The point is that we are not currently in a recession. However, we still have the elements in house to make one in the future. Check out the chart below to see how often periods of high inflation precede recessions and bear markets:
Again, I appreciate how tempting this recent rally is to investors desperate not to be on the wrong side of the action. Couple that with just enough media attention and there seems to be reason to actually be the start of the next bull market.
But before committing to this, please refer to the inflation/recession chart above. Do you see periods of inflation rising to the current level that was NOT followed by a recession?
As you know, the most dangerous thing about investing is to say, “this time it’s different“.
Normally it is no different. Most of the time, life follows well-worn patterns. And for me the pattern of high inflation and recession/bear market is hard to ignore.
So yes, this time could be different. But if I were you, I’d wait for more evidence that the recession has finally been averted before expecting more upward expectations than we’ve already seen. Until then, I would hold a bearish bias in place.
What to do?
Right now, there are 5 positions in my hand-picked portfolio that will not only protect you from an impending bear market, but also lead to big gains as stocks fall again.
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 5 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 were up $0.33 (+0.08%) in after-hours trading on Tuesday. Year-to-date, the SPY is down -12.75%, 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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