The large rally of the S&P 500 (SPY) this week has led more people to imagine that a bull market is imminent. Steve Reitmeister, a 43-year veteran of investing, analyzes his updated market forecasts in a trading plan. (Spoiler alert: the longer term of stock prices will not be as vivid as advertised.) Download the complete story below.
Stocks broke through strong resistance on the 4200 level for the S&P 500 (SPY) Thursday. Then Friday put an exclamation mark in motion, closing all of the option to 4282.
Can we finally call it a latest bull market?
And what does that mean for stocks in the approaching days?
These topical topics will probably be the main target of today’s commentary in addition to our trading strategy going forward.
Market Commentary
Already, many individuals say that this is a latest bull market. And that could be true over time. Nonetheless, for the time being, the stock doesn’t meet the official definition, which is 20% up from the bottom closing level.
So on October 12, 2022, the S&P 500 index closed at a low of three,577.03. Now add 20% to that which suggests stocks must close above 4292.44 to technically be called a latest bull market.
(Yes, the market hit a day by day low of three,491 in October. However the official measure of bull and bear markets is based on closing prices as stated above.)
So we are only 10 points from Friday’s near the official end of the brand new bull market. This event would likely trigger a major FOMO rally as more bears would throw within the towel, but first a word of warning…
DON’T BELIEVE IN HYPE!
Please do not forget that this rally was concerning the announcement of the debt ceiling agreement. Nonetheless, as reported in my last articlethis consequence has never been doubtful, as allowing insolvency is a nuclear option that neither side can afford.
When the irrational exuberance subsides next week, investors will return to the identical bulls and bears debate as as to whether we could also be heading towards a future recession. Recent economic data has been mixed in this regard, starting with ISM Manufacturing which was well below expectations at 46.9. Furthermore, the potential component of Latest Orders fell to 42.6 points, which suggests weaker results ahead.
Yes, below 50 = contraction. And so, since November, we have had lower than 50 years without a recession forming. But with a directional deterioration, it’s actually not a positive for those calling for a bull market.
But Reity, how about a strong employment report on Friday morning… that is actually cause for optimism, is not it?
Evil.
Overall, the market ought to be pleased with signs of economic strength, corresponding to the addition of 339,000 jobs, which was 80% higher than expected. Nonetheless, this is not a positive because the Fed continues to push the brakes on the economy hard to stifle inflation.
Probably the most resistant (aka sticky) types of inflation is wage inflation. It’s still an excessive amount of, since the labor market is too strong. So, for those who’re a Fed official counting on the newest data on your next rate of interest decision…then today’s far too strong employment report will only reinforce their hawkish resolve.
Today’s news still has the chances of a 6/14 rate hike of just 30%. Which means that investors expect a break that the Fed has signaled is more than likely. BUT the chances of one other rate hike in July just increased to 70%, which suggests investors realize the Fed is not done with its hawkish regime (and it is NOT bullish).
Now consider this graph of the unemployment rate just before the onset of every recession:
It is quite clear that the unemployment rate is a lagging recession indicator since it looks best right before the subsequent recession starts.
But indeed, to substantiate that a recession is at hand, we’d like to see how the number of recent jobs is actually negative and the unemployment rate soars. Given all of the previous false signals of an impending recession… here’s what will probably be needed to persuade investors to significantly sell stocks again.
Reity, is it possible that you simply are mistaken and that this is actually the start of a latest bull market?
Yes. This is possible, which is why my 2 newsletter portfolios are currently principally 50% long. What could be called balanced and prepared to modify to more bullish or bearish when more concrete evidence turns out to be useful.
The important thing immediately is to recollect the painful lessons of the 2007-2009 bear market (also referred to as the Great Recession). Technically, stocks were on a latest rally, with a 20 percent increase from their November 2008 lows to early January 2009. Next thing you understand, they’re down one other 28 percent to a final and painful low in March 2009
These false breakouts are all too common in modern times given the over-influence of computer traders. Their favorite game is to push stocks through key resistance and support levels to draw suckers… after which reverse course, locking in big gains on the expense of others.
I will probably be more optimistic when the likelihood of a recession really decreases. As already mentioned, this is not the case, leaving my balanced approach.
I believe at this stage the stock will probably be hovering around 4200 to 4300 within the June 14 Fed announcement when it is going to likely AGAIN remind people there is more to do. And the rates will stay higher for longer. And still don’t plan to chop rates until 2024. And this inflation is too sticky. And that their baseline scenario is that a recession will form before they end their efforts to bring inflation right down to the two% goal.
Investors appear to have a month-long case of amnesia between Fed announcements. Then they sell because they’re one way or the other surprised by what Powell says many times in press conferences. So I feel a more aggressive long motion ahead of the mid-June announcement seems pretty unwise.
What to do next?
Discover my approach to a balanced portfolio for uncertain times. The identical approach that has beaten the S&P 500 by a large margin in recent months.
This strategy has been constructed based on over 40 years of investment experience to understand the unique nature of the present market environment.
It is neither bullish nor bearish for the time being. Quite, he is confused and insecure.
Nonetheless, given the facts, we are going to more than likely witness a bear market coming out of hibernation, which is able to drive stock prices down again.
We’re pleased to introduce strategies that won’t only survive this crisis… but will even thrive. That is because with 40 years of investing experience, this is not my first time at a bearish rodeo.
Should you’d prefer to learn more and see the hand-picked trades in my portfolio, click the link below to start on the precise side of the stock:
Steve Reitmeister’s Trading Plan and Top Picks >
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 were up $0.08 (+0.02%) in after-hours trading on Friday. The SPY has gained 12.32% because the starting of the yr, in comparison with the share increase of the S&P 500 index over the identical period.
In regards to the Writer: Steve Reitmeister
Steve is higher known to the StockNews audience as “Reity”. He is not 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 past and links to his latest articles and stock offerings.
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