History Lessons Say Stocks About to Head Lower Again Yes, history has a way of repeating itself. Like how periods of high inflation are followed by recessions and bear markets time and time again. Or how periods of high...
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Yes, history has a way of repeating itself. Like how periods of high inflation are followed by recessions and bear markets time and time again. Or how periods of high stock valuations often lead to extended bear markets like 2000 to 2003…and yes that may be repeating now. Before you believe that the next bull market has emerged you may want to read this article to appreciate why the odds point to more downside ahead.
In June stocks tanked.
In July stocks rallied.
In August stocks ???
To help predict the answer to that question I offer up this week's Reitmeister Total Return commentary to plot our course forward.
Market Commentary
Last week I wrote a manifesto on why I still think we are in the midst of a bear market and that right now we are just in experiencing a good ol' fashioned suckers rally. This is why I continue to short the market expecting lower lows ahead.
However, I do have to admit that it is possible this could be the start of the next bull market and won't let it slip through our fingers leading to a bullish portfolio contingency plan. The key was relying upon the proven market timing signals from my friends at TheDowTheory.com.
All that and more is spelled out in this extended commentary: Bear Market Rally or New Bull Market Emerging?
Subsequently to that I just hosted the August Platinum Members webinar to spell some of these ideas out further. With more charts showing the commonality of bear market rallies equally as long and equally as impressive as this one before the next leg lower.
All in all the similarities of this market with the extended bear of 2000-2003 is starting to become more evident and why we have to be patient for that likely next leg lower;
Watch August 2022 Platinum Members Webinar >
Since then it does appear that stocks are stalling out at the same peaks from two months ago.
The news media fixated on Nvidia and Micron giving back to back wake up calls to investors as the reason the rally stopped in its tracks. Like how the big 1% gain on Monday frittered away into a loss by the end of the session.
Note that both of these industry giants gave unsettling outlooks of decreased demand in semiconductors which is basically the heart beat of technology. This explains the weakness in the technology sector which was recently leading the market higher.
Tim Biggam, editor of our POWR Options newsletter, also sees good reason for this bear rally to run out of steam. He shared those views in this new article: 4 Big Reasons Why the Bear Rally is Nearing an End
Or take a gander at how there has been a parade of Fed Governor's clearly singing from the same song sheet that they feel the economy is strong enough for them to AGGRESSIVELY raise rates. The latest such statement came from Fed Governor Bowman where she says to not be surprised if another serving of a 75 basis point hike is on the way.
Get it straight dear friend. The Fed is a well orchestrated machine whose #1 goal is transparency. Their #2 goal is fighting inflation. And #3 is achieving maximum employment. And right they are transparently telling us that there is no end to raising rates in sight to beat down the flames of raging inflation.
To me this says that we may have averted a recession to date...but these hawkish moves by the Fed greatly increase the odds of a recession appearing in the future. Not surprisingly a recent Goldman Sachs poll shows that the majority of economists and investment strategist predict that if a recession is coming, it will be in Q1 of 2023.
That is why investors are right to pause here and see what comes next. If somehow we raise rates and the jobs market continues to shine...then there will be solid fundamental ground to advance higher and I will happily pick up the bullish banner.
However, if we start seeing cracks in that employment foundation, then it sets off a chain reaction that we have discussed before:
Job Loss > Lower Income > Lower Spending > Lower Profits > Lower Stock Prices
The point being we are not currently in a recession. However, we still very much have the elements in place to create one in the future. Just 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 to not be on the wrong side of the action. Couple that with just enough media attention and there seems to be reason for this to actually be the start of the next bull market.
But before you commit to that please refer back to the inflation/recession chart above. Do you see any periods of inflation spiking to current levels that did NOT have a recession to follow?
As you know the most dangerous thing in investing is saying "this time is different".
Normally it is not different. Most often life follow well worn patterns. And for me the pattern of high inflation and recession/bear market is hard to ignore.
So indeed this time might be different. But if I was you I would wait for more proof that recession has definitely been averted before expecting more upside than we have seen already. Until then I would keep a bearish bias in place.
What To Do Next?
Right now there are 5 positions in my hand picked portfolio that will not only protect you from a forthcoming bear market, but also lead to ample gains as stocks head lower once again.
Like the ample gain our members enjoyed in June as the market finally tumbled into bear market territory.
This unique strategy perfectly fits the mission of my Reitmeister Total Return service. That being to provide positive returns…even in the face of a roaring bear market.
Come discover what my 40 years of investing experience can do you for you.
Plus get access to my full portfolio of 5 timely trades to not just survive...but thrive in this brutal bear market environment that is far from over.
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 rose $0.33 (+0.08%) in after-hours trading Tuesday. Year-to-date, SPY has declined -12.75%, 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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