After the stock market (SPY) made new lows on Monday we have seen a fairly courageous bounce. But will it last??? More likely we are in a bottoming process that will have us make lower, scarier lows before a lasting return to the bull market. Read on below for the full story and trading plan….
(Please enjoy this updated version of my weekly commentary from the Reitmeister Total Return newsletter).
Week over week stocks are virtually unmoved at 4,175. But that gives the false sense that things have been calm when we all know the exact opposite is true.
Yet even in the midst of all this volatility and turmoil, there are approaches that are working. Like the fact that the Reitmeister Total Return portfolio has beaten the market for 5 straight days leading to a +3.55% return for our portfolio.
So let’s review what is going on now…and where things point to in the days/weeks ahead. Even better, let’s talk about the game plan to stretch our lead over the market this year.
The outlook for the economy is even more uncertain after the shockingly poor -1.4% GDP reading from last Thursday that we discussed in this intraday note; “That’s Really Weird”
And as we all know the market HATES uncertainty. This leads to severe volatility with a bearish bias…precisely what we have endured this year with an ugly mix of:
- High Inflation
- Soaring Energy Prices
- Hawkish Fed
- Russia/Ukraine Crisis
- Weaker than Expected GDP Results
I have tackled each one of these topics 1 by 1 in this commentary. Each in isolation is not bearish by themselves and can show ample historical evidence to support how the bull stays on track. However, to claim that this is a positive backdrop for stocks would be a severe misstatement.
Instead we are in wait and see mode for what happens next. In particular what happens on the economic front to see if there is any merit to the oddly low -1.4% GDP reading last week. Here is what I said about this yesterday in my POWR Value commentary:
“…the vast majority of experts I follow believe the weak print of Q1 GDP is downright laughable.
Or to put it this way…if this report was a sign of more economic damage to come, then there is no ways that the GDPNow Q2 forecast from the Atlanta Fed would be as high as +1.6%. Nor would the Blue Chip Consensus panel of economists see growth almost twice that level at +2.8% for the current quarter.
The point being that there is not much reason to call for a recession and bear market at this time.”
ISM Manufacturing this week was another feather in the “economy is just finecamp. Hopefully the same will be true with ISM Services on Wednesday followed by the Government Employment report on Friday.
Now let’s imagine that this weak GDP report was indeed an aberration. Then this portion of my POWR Value commentary from Monday would also be true:
“…stocks are likely in a bottoming process. One could say that 4,000 could very well be that level given the tremendous support that is found at all century marks on the index.
If we broke below 4,000 then it could be a move down towards the border of bear market territory at 3,855. That is exactly 20% below the all time high of 4,818.62.
To head under that mark would be a sign of conviction on the part of investors that indeed recession is coming and bear market is the natural outcome. Yet, I do not believe that conviction is there.
First because the economy is not truly in a recession (as noted above). Second, because there is no other attractive place to invest in right now. That’s because putting your money in cash or bonds is a guaranteed a loss versus high inflation right now. So that will turn more heads towards the stock market coming off yet another strong earnings season with corporate profits projected higher for the future.
This is an overlooked economic indicator. Because corporate managers need to keep earnings guidance low making it all the easier to leap over when they report next.
So the very fact that guidance was indeed strong after Q1 earnings means that these highly qualified people, with their feet firmly on the ground of the economy do not see the signs of slowing. To me that says odds of recession is very low and that soon investors will “buy the dip” and “climb the wall of worry” to close the chapter on this correction once and for all.
Or to put it another way…I expect us to have a scary drop towards to a new capitulation low between 3,855 and 4,000. And at that darkest hour stocks should bounce with gusto making it prudent to stay bullish at this time.”
Is it possible that the Monday low of 4,062 is close enough to 4,000 to say that bottom has been found? Yes…but unfortunately not as likely as what I noted above as a correction of this magnitude typically comes with a more dramatic bottoming process.
But the story remains the same leading us to keep our bullish bias in place for now because the facts say risk is to the upside…not downside from these levels.
If and when the facts change, so too will our investment approach.
What To Do Next?
Discover my current portfolio of 9 hand picked stocks and 4 ETFs inside the Reitmeister Total Return portfolio that are perfect for this hectic market environment. The same portfolio that firmly beat the market last year and is doing so once again in 2022.
This service was built to find positive returns in all market environments. Not just when the bull is running full steam ahead. Heck, anyone can profit in that environment.
Yet when stocks are trending sideways, or even worse, heading lower…then you need to employ a different set of strategies to be successful.
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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
SPY shares . Year-to-date, SPY has declined -12.06%, 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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