More economists are pointing to the recession storm clouds not boding well for stock prices. Fortunately, the stock market (SPY) offers the opportunity to make a profit regardless of direction…if you apply the right strategies. This article provides more details on the market outlook along with a trading strategy with 9 picks coming out on the right side of the action. Read on below for more….
Let me pass to the essential conclusion of this week’s commentary.
Not only do I believe we have a much steeper bear market ahead, but I have hand-selected 9 trades to set you up for profit as the market tumbles to new lows.
More on that later. First, it’s important that you appreciate the contracting storm clouds ahead of the recession over the next 12 months and why stocks will soon fall much lower…
Earlier this week, I offered my most consistent commentary to help explain why a recession and a steepening bear market are on the way. I’ve even shed light on why the Fed wants and even needs this so much.
Yeah, that sounds pretty conspiratorial on the surface. However, I think if you read through it, the truth of the matter will emerge quite easily.
I’ll share the link below in case you haven’t read it yet, as it provides a good backdrop to what we discuss next:
One of the main points in it is about the Fed’s array of tools to help manage demand to reduce inflation. The least discussed, but still powerful tool, is the idea of ”talking about the market”.
Here is the most important part of the article on that topic:
“So “talking about the market” is about creating a pessimistic atmosphere that leads to lower demand. This is best understood by recognizing that the people who own the most stocks are also the richest people in the country who spend the most as consumers. Those same people are also the captains of industry who control the company’s wallet.
With that in mind, now consider this chain reaction:
More bearish in the stock market > More pessimistic economic outlook > Less spending (consumers and businesses) > Lower demand > Lower inflation
Once again it seems that I am going the conspiratorial route with this conversation. But think about the STERN comments from Fed officials every time we’ve had a spike in stock prices in recent months. This is the essence of talking about the markets.”
Against that background, consider Fed Governor Bullard’s speech Thursday morning, which caused stocks to fall rapidly. Here’s one link to full article on what he discussed. And here’s what I think is the most important eye-opening comment:
“However, Bullard’s presentation argued that 5% could serve as the low range for where the borrowing rate should be, and that the upper limit could be closer to 7%. That is out of sync with current market prices, with the Fed Funds rate also set to reach around 5% by mid-2023.”
Let me rephrase this important conversation.
Many traders thought the possible signs of peak inflation found in this month’s CPI report were a good reason to start the next bull market. This led them to believe that the previously understood 5% Fed Funds rate level would never be reached because it was not necessary.
Bullard doesn’t just say there’s 5% left in the game. Rather, it is at the lower end of the range of what it would take to correct inflation by 7%, a real possibility. That level of hawking goes hand in hand with a recession.
I can assure you that the leaders of the meeting of early November to 4,000 did not appreciate this vital fact. Heck, even the bears that pushed stocks to 3,491 in early October didn’t appreciate this possibility, which will now be questionable and, by extension, detrimental to the economy and the stock market.
Again, the recession and bear market theory is still in full swing with lower lows on the way this year. That’s why a recent survey by the Wall Street Journal found that market experts are now 65% expecting a recession to come within the next 12 months.
Note that the average recession and bear market came with an expectation of only 40% of that negative outcome. So this shows a very clear increase in negativity of what the future holds for investors.
For these reasons and many more, I still believe the 2,800 to 3,200 is the base range of the bottom of this bear market for the S&P 500 (SPY). And if you were to put a gun to my head to pick the precise level, I’d say anything less than 3,000 would probably be just the right amount of panic and capitulation that should mark the true and lasting bottom.
However, we are way ahead of things, as that will happen in 3-6 months.
Simply put, you should expect more downside effects in the stock market in the coming weeks and months. So it’s best to prepare your portfolio accordingly to not just survive…but thrive in that market environment.
What to do now?
Discover my special portfolio of 9 easy trades to help you generate profits as the market continues to slide into bear market territory.
This plan has worked wonders since it went into effect in mid-August, generating hefty gains for investors as the market crashed.
And now is a good time to reload as we face another bear market rally before stocks hit even lower lows in the weeks and months to come.
If you successfully sailed through the investment waters in 2022, you can ignore it.
However, if the bearish argument shared above has you curious about what happens next…consider getting my update”Bear Market Game Planwhich details the 9 unique positions in my timely and profitable portfolio.
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 remained unchanged in afterhours trading on Friday. Year-to-date, SPY is down -15.65% versus a percentage increase in the benchmark S&P 500 index over 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 company, but he also shares his 40 years of investing experience in the Reitmeister Total Return Portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.