The S&P 500 (SPY) appears to be on the verge of a significant break above the important thing 4,000 level. It is because some are praising the lowering of inflationary pressures. Nonetheless, the flip side of this coin is that that is on account of the approaching recession on the horizon, which provides enough reasons to remain bearish in 2023. That is why Steve Reitmeister, a 40-year veteran of investing, is begging investors to open their eyes and appreciate what’s happening at once. And the right way to trade on this still bearish market environment. Read below for the total story.
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The rally in early 2023 was at all times too good to be true. It is because a short-sighted give attention to containing inflation must give strategy to a broader view of the looming recession, which should prompt investors to hit the sell button again. Not only a brief hiatus as we saw on Wednesday and Thursday.
We’d like to look deeper at this conflict between investors focused on inflation data and people taking a look at the massive picture. You already know I’m on the side of the latter group, which is why the bear drums are ringing louder and louder in my ears.
The conflict between bulls and bears shall be the important topic of dialogue this week.
Market Commentary
The fight against inflation against the recession took center stage on Wednesday when 2 key economic reports were released concurrently at 8:30am EST: the Producer Price Index (PPI) and Retail Sales.
The much lower-than-expected PPI report caught everyone’s attention, leading stocks to surge above the important thing resistance level of 4,000 for the S&P 500 (SPY) The subsequent thing is the downward momentum that lasts all day. The stock thus sold off 2% from high to low, ending the session at 3,928.
Short-sighted inflation-focused investors were scratching their heads.
Those that focused on the red flags within the retail sales report knew exactly why stocks were falling. That is one other nail within the coffin of recession for the US economy.
To be clear, inflation is unquestionably falling at a faster pace than most expected. Which means that the Fed’s hawkish policy is working. They usually may turn into pigeons earlier than expected… but not for long. This news was echoed again on Friday by Fed Governor Waller, who said:
“…we still have a protracted strategy to go to our 2% inflation goal and I expect to support continued monetary policy tightening”
HOWEVER, the true reason why inflation is falling is that we’re currently teetering on the point of a recession. This followed loud and clear from the recessionary signals from countless January economic reports, equivalent to:
- 48.4 ISM 1/4 production with 45.2 latest orders (reads recession)
- 49.6 ISM services on 1/6 with 45.2 latest orders (reads recession)
- 89.8 NFIB Business Optimism Index at 1/10 (lower reading than during Covid…reads recession)
- -32.9 NY Empire State Manufacturing Index (lowest reading since May 2020, when the economy was in total collapse).
And so, the retail sales report, which got here together with the PPI report on Wednesday morning, doesn’t bode well for the buyer’s state. The -1.1% month-on-month drop is all of the more shocking if you realize we’re talking about December retail sales…yes, the normally buoyant holiday shopping season has been under water.
This can be a very typical pattern for a recession triggered by high inflation. Consider it this fashion…if you fear rampant inflation, it signifies that if you happen to do not buy now, the value shall be way too high in the longer term.
At first, this leads to impressive economic growth as demand increases (buy now). After which a chasm is created as buyers are tapped out with less to spend in the longer term. This contraction = recession. That cliffhanger might be what we saw on this week’s holiday shopping performance, in addition to other economic data from early 2023.
Indeed, easing inflation in itself is nice news. And he’s probably saying the Fed won’t should go that top with rates of interest or keep them for as long.
Then again please appreciate the indisputable fact that all of this is going on because we’re in month 10 of this hawkish regime which might be causing a recession which is causing lower demand which ends up in lower prices.
So if it took 10 months to create that rating, and we’re plunging right into a recession, and the Fed has already said it is going to keep rates high “for a very long time.” then we’d like to understand how long it should take for any turnaround to ease Fed policy and revive the economy.
For instance, the top of the yr… or 2024. And if you fully appreciate this picture of a recession coming before recovery… the harder it’s to essentially get 100% bullish at the moment.
Does this mean it is time to be fiercely bearish? Yes and no.
YES… that is the logical consequence of what I said above. Especially given the teachings of history where recessions are the important reason for bear markets.
NO… is that the market can often have a mind of its own and take a special path. This is particularly true when computers do more of the heavy lifting than actual traders. So fear and greed will not be similar to historical patterns.
In brief, I expect further bearish developments as increasingly investors begin to focus from the inflation picture itself to the general state of the economy. The more they read concerning the recession and lower corporate profits with it, the more likely it’s that stocks will fall from then on.
It is because the important reason for a bear market is the state of the economy…where recession = bear market.
So keep your eyes firmly fixed on this economic picture to guide your investment decisions any further. The present indications point to further declines. Nonetheless, this may occasionally not fully happen until after February 1st Fed announcement where Powell will once more remind the bulls that he didn’t stutter when he said rates of interest could be high for a very long time. And this very long time isn’t over yet.
What to do next?
Discover my special portfolio with 9 easy trades to aid you generate profits when the market goes downhill.
This plan has worked wonders because it went into effect in mid-August, generating a solid profit for investors because the market crashed.
And now could be a fantastic time to reload as we face one other rally within the bear market before stocks hit even lower lows in the approaching weeks and months.
If you happen to’ve been successful navigating the investment waters within the last yr, you may ignore it.
Nonetheless, if the bearish argument I shared above makes you curious as to what happens next…then consider updating my “Bear market game planwhich accommodates details on 9 unique positions in my current and profitable portfolio.
I wish 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 fell $0.13 (-0.03%) on Friday after trading hours. 12 months so far, the SPY has gained 3.52%, in comparison with the proportion increase of the S&P 500 index over the identical period.
In regards to the Writer: Steve Reitmeister
Steve is healthier known to the StockNews audience as “Reity”. He isn’t only the CEO of the corporate, but in addition shares his 40 years of investment experience within the industry Total Return Reitmeister Wallet. Learn more about Reity’s background and links to his latest articles and stock offerings.
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