If you’re not already bearish, it may be time to reconsider your stock market (SPY) outlook. As we can see in today’s commentary, even the best-case scenario of recent bank concerns could lead the economy into recession and lead to a deepening bear market. Read below for the full story, including the game plan for trading how to profit along the way.
There were many reasons to be bearish already. Most of them were featured in my latest presentation. Revision: 2023 stock market outlook.
But now you’re weighing in on deepening concerns about a potential banking crisis, which is shaping up to be a bearish slam dunk. This explains why the S&P 500 is below its 200-day moving average doing (spy) about to bow again.
what happens next?
What is a good trading plan?
What’s the best deal to do now?
That’s what we’re going to focus on in today’s conversation.
Market commentary
I am already on the record that this is clearly not a repeat of the 2008 financial crisis. far cry.
Unfortunately, even without another bank failure, enough damage has already been done and the economy is already headed for recession. Don’t take my word for it… Take an insight from one of JP Morgan’s economists recently:
“A very rough estimate is that slowing lending growth by medium-sized banks could reduce the level of GDP by 0.5-1% over the next year or two. “We think it’s pretty much in line with our view, and will push the U.S. into recession later this year.”
Goldman Sachs had similar sentiments in a note this week:
“We have seen a tightening of lending standards in the banking system. believes this could lead to a short-term recession or a more severe recession than it would have been without this event.”
This is probably the best case scenario.
Now imagine the worst case. It comes under increased scrutiny by investors and banking regulators, revealing a handful or more of the larger banks in need of acquisitions or recapitalization. Headline risk for each round of breaking news would be devastating for the stock market.
Beyond that, the average consumer and business owner grows fearful and wary. That’s the road to recession. And that road had already been paved by the Fed, with a hawkish government insistent on lowering demand to curb inflation this year.
It is not clear where we will land on this spectrum of banking outcomes. Unfortunately, even the best case for banks points to the potential for recession and an expanding bear market.
This explains why the last 9 sessions were below 4,000. Also, 6 of the last 7 sessions have fallen below the 200-day moving average (red line below).
Some investors will want to wait for the Fed’s next announcement on March 22nd before making the next move…but why? ? ?
Take the banking problem out of the equation. They made it incredibly clear that inflation is still too high and that they will continue to push interest rates above 5% and keep them there at least until the end of the year.
This hawkish prolongation, plus the delayed impact of Fed policy, is a very certain panacea for triggering a recession. This explains why stocks were sold out on this announcement before the bank problems occurred.
Now consider the borderline insane idea that the Fed could pause rate hikes in March to ease the pain of recent banking troubles. Here’s what I said in Tuesday’s commentary:
“In fact, I think investors will see it negatively. This is because it becomes
That said, investors shouldn’t view such moves as dreamed-up “dovish pivots.” Rather, this is the Fed pressing the panic button (which they have called public enemy #1 for over a year) that financial system stability is now more important than fighting inflation.
It may sound like a joke, but let’s hope the Fed continues its aggressive rate hikes at its March 22nd meeting.
By all accounts, we recommend being bearish on the March 22nd Fed announcement.
Now let’s move on to the economic data. this is,”canary in coal mineThe NY Empire State Manufacturing Index fell to -24.6 on Wednesday, well off expectations of -7.
Things didn’t improve on Thursday as the Philadelphia Fed’s manufacturing index fell to -23.2, nearly double expectations. There, we see the positive new orders component even worse at -28.2 (the lowest reading since Covid-centric in May 2020).
For my money, the outlook is pretty bearish. With the recent high volatility, it can be difficult to see this clearly. This leads to pulling back to get the big picture.
So from a fundamental perspective, things are headed for recession, creating a bearish environment. Moreover, the emergence of bank concerns is just one example.
A word of wisdom, therefore, is to prepare for further downside action in the coming weeks.
what next?
see my new presentation Revision: 2023 Stock Market Outlook
It covers important issues such as…
- Start now with the 5 Warning Signs of a Bear Return!
- Banking crisis worries another nail in the coffin
- How far will stock prices fall?
- 7 timely trades to profit on the way down
- Plans to bottom out for the next bull market
- 2 Trades with over 100% upside potential when new bulls appear
- etc!
If these ideas bother you, click below to access this important presentation now.
Revision: Stock Market Outlook 2023 >
Good luck with your investment!
Steve Lightmeister…but everyone calls me Reity (pronounced “Righty”).
CEO, StockNews.com, and Editor, Lightmeister Total Return
SPY shares rose $0.01 (0.00%) in after-hours trading on Friday. Year-to-date, SPY is up 1.98%, while the benchmark S&P 500 Index is up 1% over the same period.
About the Author: Steve Lightmeister
Steve is better known to StockNews audiences as “Reity”. Not only is he the company’s CEO, he shares 40 years of investment experience. Lightmeister Total Return PortfolioFind out more about Reity’s background, links to our latest articles, and more on stocks here.
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