Let me jump to the vital conclusion of this week’s commentary.
Not only do I believe we have a much steeper bear market in front of us, but I have hand selected 9 trades to set you up for gains as the market tumbles to new lows.
More on that a little later. First, it’s important that you appreciate the gathering storm clouds for recession in the next 12 months and why stocks will soon tumble much lower…
Earlier this week I put forward my most consequential commentary to help explain why a recession and steeper bear market are on the way. In fact, I shed light on why the Fed very much wants, and even needs, this to happen.
Yes, that sounds pretty conspiratorial on the surface. However, I think as you read through it the verity of the case will emerge quite easily.
I will share the link below in case you have not read it yet as it forms a good back drop for what we discuss next:
One of the key points in there is about the Feds array of tools to help reign in demand to bring down inflation. The least talked about, and yet still powerful tool, is the idea of “talking down the market”.
Here is the key section from the article on that topic:
“So “talking down the market” is about creating a pessimistic atmosphere that leads to lower demand. That can best be understood by appreciating that the people who own the most stocks are also the wealthiest people in the country who spend the most as consumers. Those very same people are also the captains of industry who control corporate purse strings.
With that in mind now consider this chain reaction:
More Bearish on Stock Market > More Pessimistic Economic Outlook > Less Spending (consumer and business) > Lower Demand > Lower Inflation
Once again it seems that I am going the conspiratorial route with this conversation. But do consider the STERN comments made by Fed officials every time we have had a spike in stock prices over the last few months. This is the very essence of talking down the markets.”
With that backdrop in place consider the speech made by Fed Governor Bullard Thursday morning that got stocks heading lower in a hurry. Here is a link to a more complete article on what he discussed. And here is what I believe to be the key eye-opening comment:
“However, Bullard’s presentation argued that 5% could serve as the low range for the where the funds rate needs to be, and that upper bound could be closer to 7%. That is well out of sync with current market pricing, which also sees the fed funds rate topping out around 5% by mid-2023.”
Let me reframe this vital conversation.
Many traders thought that the potential signs of peaking inflation found in the CPI report this month was good cause to start the next bull market. This had them believing that the previously understood 5% level for Fed Funds rate was never going to be achieved because not necessary.
Not only is Bullard saying that 5% is still in play. Rather, it is at the low end of the range of what is needed to corral inflation with 7% a real possibility. That level of hawkishness is comes hand in hand with a recession.
Let me assure you that the leaders of the early November rally up to 4,000 did not appreciate this vital fact. Heck, even the bears pushing stocks down to 3,491 in early October did not appreciate this possibility which now doubt will have detrimental effects on the economy and stock market by extension.
Once again, the recession and bear market thesis is still in full swing with lower lows on the way this year. That is why a recent Wall Street Journal survey showed that market experts now have a 65% expectation of a recession coming within the next 12 months.
Note that the average recession and bear market came with only a 40% expectation of that negative outcome. So, this shows you a very marked increase in negativity of what the future holds for investors.
For these reasons, and many more, I still believe that the 2,800 to 3,200 is the basic range of this bear market’s bottom for the S&P 500 (SPY). And if you stuck a gun to my head to pick the precise level I would say a little under 3,000 would probably be the proper cause for panic and capitulation that should mark the true and lasting bottom.
However, we are getting way ahead of ourselves as that is like happening 3-6 months from now.
Simply stated, you should expect more stock market downside in the weeks and months ahead. Thus, best to prepare your portfolio accordingly to not just survive…but thrive in that market environment.
What To Do Next?
Discover my special portfolio with 9 simple trades to help you generate gains as the market descends further into bear market territory.
This plan has been working wonders since it went into place mid August generating a robust gain for investors as the market tanked.
And now is great time to load back as we deal with yet another bear market rally before stocks hit even lower lows in the weeks and months ahead.
If you have been successful navigating the investment waters in 2022, then please feel free to ignore.
However, if the bearish argument shared above does make you curious as to what happens next…then do consider getting my updated “Bear Market Game Plan” that includes specifics on the 9 unique positions in my timely and profitable portfolio.
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
Want More Great Investing Ideas?
SPY shares were unchanged in after-hours trading Friday. Year-to-date, SPY has declined -15.65%, 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. More...
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