Please enjoy this updated version of my weekly commentary.
Earlier this week I presented my updated stock market (SPY) outlook and game plan for investors at the Financial Answers Wealth Summit.
This is the best way to get the full picture of why I am bearish...how low stocks will go...and how to tame the bear now...and how to prepare for the emergence of the next bull market.
Reity, I appreciate your presentation. Great stuff. And damn you are handsome. But how do you explain the 250 point rally in the S&P this week?
Does a bull market go straight up?
Heck no. In fact, over the past 60 years, with the vast majority of that time being inside bull markets, stocks only had positive days 53.7% of the time. Yes, that means that 46.3% of the time the market ended lower on the day.
This also means there are weeks or even months that end firmly in the red even during the most glorious of times. Yet as we look back over months and years we appreciate how the positive days stack up more and more in our favor.
The same exact thing is true during the bear market...just the inverse. Meaning that there will be many positive days or even weeks during a bear market. Yet over time the downward trajectory is undeniable.
(Please read the above again so it sinks in).
In this specific case the bear market officially formed on Monday 6/13 when the S&P 500 (SPY) crossed below 3,855 into bear market territory (20%+ drop from all time highs of 4,818). This breakout was confirmed by not 1, not 2, but 8 closes below helping to etch the bear market in stone.
However, it is quite common to retest key resistance levels (in this case 3,855). That is as common as night following day in the investing world. And thus should be no surprise to anyone that we retested that level Friday. Even closing above for a day or two before getting back on the bear market trajectory to lower lows is not out of the ordinary.
Why should stocks head lower again?
Again, spelled it all out in this presentation: Watch it here now >>
Reity, but maybe you haven’t noticed the ferocity of this bounce. Like the 3% rally Friday that has stocks back ABOVE bear market territory. Doesn’t it make you question your bear market thesis...even a little???
As an investor it is wise to be open minded. To take in all new information as it rolls in and to appreciate how often you can be wrong in investing...that foreknowledge helps to mitigate risk in not leaning too far in one direction or the other.
So yes, I appreciate that I could be wrong. Bear markets are a much more difficult environment to work in than bull markets.
For instance during a bull market I will be 100% invested almost all the time as the landscape is so much easier to navigate and confidence levels in a positive outcome are high. But as you will note in POWR Value I am only 50% long.
This is a nod to the downside probabilities yet not so defensive as to miss out on some upside if the bull market does re-emerge.
In my Reitmeister Total Return service, where I am much more aggressive on market timing, there I am 70% short the stock market using a blend of 4 different inverse ETFs. Note that I am not 100% short. Meaning my level of confidence is not as high as I am during a long term bull market environment.
Putting it altogether, right now I believe we are maybe at half time of this game with another 15-20% downside to go. That will come with some nasty runs to lower lows followed by wicked bounces that look alluring only to head back lower again.
These are what we commonly call “suckers rallies” because they suck you in before spitting you out.
Since my S&P 500 (SPY) outlook presentation on Tuesday, the economic data has NOT gotten better. This includes the Chicago Fed National Activity index falling to an 8 month low of +0.01 versus +0.40 last month.
This is a very broad index of economic activity that basically is on the border of falling into negative territory after robust showings in the recent past. That is foreboding for what comes next in this report.
Then on Thursday the PMI Flash report tumbled from 53.6 to 51.2...well under expectations. And teetering on going negative under 50 after a glorious run of being at 55-60 for the better part of the last 18 months. Once again, directionally this points to a marked slowdown in economic activity.
Lastly, Consumer Sentiment on Friday tumbled to an all time low at 50. To be clear 100 is considered normal conditions.
As you would suspect rampant inflation is the culprit behind the unease with consumer as too much money is going into the gas pump and not a lot left over to buy other products & services which have also shown considerable price increases.
Consumer Sentiment = mood. And mood effects actions.
So what this tells us is that consumers are in a bad mood and will be spending less given their unease with the economic environment. Not helping matters is that wages have not kept up with inflation making them feel poorer at this time.
This is why high inflation and recession (and therefore bear markets) go together like peanut butter and jelly. And thus why I continue to have a bearish outlook at this time.
Closing Comments
Note there were many other outstanding presentations at the Financial Answers Wealth Summit this week. Be sure to check out the full line up of replays available for free here.
Wishing you a world of investment success!
Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
CEO, StockNews.com
Editor, Reitmeister Total Return & POWR Value
SPY shares closed at $390.08 on Friday, up $12.02 (+3.18%). Year-to-date, SPY has declined -17.26%, versus a % rise in the benchmark S&P 500 index during 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 firm, 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 picks.
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