I have talked previously about this being a consolidation period under the S&P 500 (SPY) highs of 5,341. But with that seems to also be a rolling correction.

What is that?

Why does it happen?

What can we do about it?

We will tackle all these questions and more in today’s Reitmeister Total Return commentary.

Market Commentary

A rolling correction is a unique market environment that takes place maybe once or twice a year. On the surface it seems like just a consolidation of the market playing in a tight range…often just under a level of resistance like recent highs.

Below the surface is a violent sector rotation that takes big chunks out of groups. What amounts to a 10%+ correction in prices even while the overall market indices are barely budging at all.

The only way to make that possible is that other groups are rising a relatively equal amount. That often is the stock groups that were just in the dog house experiencing the aforementioned 10%+ haircut.

In time just about every group will endure a correction followed by a hefty bounce back to previous levels. This form of house cleaning is brutal on your psyche as you often see tremendous losses in your portfolio even as the market averages are around breakeven.

You may wonder if you are cursed…or the Market Gods are against you.

This feeling is then supplanted by feeling like you have the Midas Touch as your stocks bounce back with gusto (once again while the overall market has barely budged).

Neither scenario is true. You are neither cursed…nor magical. Just the way things play out in a rolling correction.

Please do not come to the false belief that you can avoid this by perfectly timing your way in and out of the right groups. The randomness of how it plays out makes that very difficult.

Your best bet is to have a diversified portfolio that doesn’t have too many stocks in the same baskets. This will make it easier to endure the losses in one group as likely other groups are on the sunny side of the market.

But there will be days where it seems like everything goes wrong. Your best bet is to realize that on the other side of that seemingly unjust beating…is outsized rewards. So you are best served holding tight onto the stocks as they go down since they will soon bounce back with gusto.

As for the overall market we are unlikely to make new highs until the arrival of Fed rate cuts. That is currently projected three Fed meetings from now on September 18^th. Yet as we have seen too often in the past, the starting line keeps moving further back as inflation remains too persistently high.

That is why we want to keep our eyes peeled on economic data that hopefully points to modest growth that should ease inflationary pressure. That goes hand in hand with key inflation readings moving ever closer to the Fed’s 2% target.

Next up on that front are the following economic events:

6/5 ISM Services:

6/6 Government Employment Situation & Wage Inflation

6/12 CPI, Fed Mtg with release of Summary of Economic Projections

6/13 PPI

Each one of these announcements will bring fresh insight on the pace of inflation and thus rejigger the odds of the timing of rate cuts. That will have follow on effects on stock prices.

Again, I highly doubt that stocks will make new highs until there is GREAT CERTAINTY on rate cuts on the way. Until then expect this ongoing consolidation with rolling correction to stay in place.

What To Do Next?

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Wishing you a world of investment success!

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

SPY shares were trading at $528.84 per share on Tuesday afternoon, up $1.04 (+0.20%). Year-to-date, SPY has gained 11.61%, 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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