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It’s been a long time since I’ve spoken to someone who enjoys the recent stock market movements. too unstable. too illogical. There are no real trends. all true. But the more you understand why this is happening, the easier it will be to diagnose what happens from here and how you can trade and profit from it. (Spoiler alert) I’m still bearish. Luckily, as the S&P 500 (SPY) falls from here, we still see 7 timely trades that can be used to profit. Read the full story below….
I woke up two days ago and already knew the subject of this article.
Worst stock market ever!
That’s because this ride is more of a tilt-a-whirl than a merry-go-round, thanks to all the volatility. Corn dogs, cotton candy and elephant ears are coming soon. (Sorry for the visuals… but had to drive the gist home 😉
Happily returning to the big picture can make sense of it all and point the way to a calmer coast.
Market commentary
Ok…you may be joking that this is the worst stock market ever…but it’s certainly not fun. That’s because most people are rational and want things to go in a more orderly fashion. The stock market has been much more than that lately.
Up, down, all round. Not just weeks or months, but inside a single session. This past month candlestick chart tells the story beautifully.
What’s worth pointing out in this chart is that it starts off completely flat each month. This seems to indicate that nothing significant happened.
Now look deeper. Note how short-lived all rallies are…and how short-lived the sell is. And finally, notice how big some of those candles are with tremendous movement during the day.
All the action in the last month…and nothing in the market average shows that.
Here, it makes sense to look at things at the sector level, where we see more diversity between winners and losers.
The obvious part is financial weakness thanks to all the bad news in the banking sector. Real estate has such a close relationship with banks that it’s clear why that group picked it up as well. The rest of the underdogs are a fairly risk-on group, talking about growing concerns about the future health of the economy.
Corresponding to this is that most risk-off groups are near the top of the list. Consumer Protection, Utilities, and Healthcare. The strange thing is the strength of communication services and technology. But given that Tech is dominated by the FAANG…and they often act as a defensive group that people cling to…and the whole picture is that the whole market is in a risk-off month I understand that you are indicating that there was.
Everything I’ve explained so far explains what’s going on…let’s move on to WHY.
The short answer is that the outlook for the economy (and thus the stock market) is uncertain. So every new day brings a new headline: bearish today, bullish tomorrow.
Sure, people are aware of the threat that could lead to a recession…but it doesn’t keep happening. And that confuses the odds of what happens next, prolonging the tug-of-war between bulls and bears.
For example, by the end of 2022, many economic data were weakening. Like ISM manufacturing he was under 50. Also, after removing inflation, retail sales actually contracted. That has sharply lowered corporate earnings forecasts for the first quarter of this year, with Wall Street now forecasting a -9% earnings loss.
Given that many thought Q1 GDP would also be in negative territory, that sharp loss isn’t much on the cards… perhaps marking the beginning of a new recession. And now if you look at the most respected GDP forecast model (Atlanta Fed’s GDP Now), it’s +3.2% this quarter.
Reity, you are beginning to contradict yourself. Think you’re bearish in the market?
yes. That’s true. I just wanted to clarify why the market is so volatile. This is a mixed signal about an economy where bulls and bears are battling it out for control.
Now we must turn our attention to the future and what is likely to happen. Again, I’d like to share this simple yet effective equation to briefly explain why I’m still wearing my bear cloak.
Ongoing higher rate (5%+)
+ To be introduced by at least the end of 2023
+ 6-12 months delayed economic impact of Fed policy
+ bank credit crunch
= fertile soil for future recessions
Fed Chairman Jerome Powell addressed all of the first four factors in his recent rate hike announcement and in his March 22 press conference. In fact, stocks were soaring during the speech until he attacked people with hawkish punches like:
“This could be [banking crisis] It will prove to be a very modest impact – these events will prove to be a very modest impact on the economy, if that is the case – and inflation will remain strong. The potential could also contribute to a significant tightening of credit conditions over time, which in principle means that monetary policy has less work to do. we simply don’t know. ”
This was followed by a statement that a credit crunch was occurring and by itself was relatively equivalent to a 25-50 point basis cut. This drove the stock down from a near +1% session to almost breakeven. And then came Punch #2.
A reporter said the current survey shows that the average investor expects just one more 25 basis point rate hike and will rate CUTS at every subsequent meeting. So are investors wrong?
yes!
It wasn’t just the words he used. Powell said so. Like the disappointed parent when their child brought home his F on the report card. (What am I not understanding here!!!).
And he reiterated, very emphatically, that their forecasts don’t need a cut this year either.From there, the S&P 500 gave up a 1% gain and fell to -1.65% towards the close.
For me, the aforementioned equation that begins with a hawkish Fed ends in a recession at some point in the future. Obviously not Q1, but Q2 and the rest of the year are still very important.
Unfortunately, the recent trading range and extreme volatility will continue until investors see more evidence of a recession. As such, we recommend investing based on what you expect to happen beyond that range. Again, it’s clearly leaning bearishly in my book.
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 stock. Year-to-date, SPY is up 3.88% for him, while the benchmark S&P 500 index is up 3.8% 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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