The S&P 500 (SPY) appears to be breaking out into bull market territory above 4,200. However, history shows many examples that this could be nothing more than a Suckers rally. That’s why you should check out Steve Reitmeister’s latest market commentary for a clear trading plan and top tips for this unique market environment. The full story is below.
Stocks rallied last week on news that a debt ceiling showdown is likely to be averted. I would like to say a big, heartfelt…
Because politicians never leave their fingers in this lamp socket for long. It is always magically solved in time.
As the smoke of this rally cleared, investors realized they did not have the resolve to truly move into bullish territory above 4,200 for the S&P 500 (SPY). This likely means more limbo and trading ranges ahead as investors wait for a REAL catalyst to resolve the bull/bear debate once and for all.
Let’s take a look at why that is… and what potential catalysts are on the calendar that could be the next big move for the stock market.
The short version of my current market outlook has been well summarized from my previous comment as follows:
“All year long there was a tug of war between bulls and bears. With stocks rocketing near 4,200 in early February, it seems like the bulls took the early lead…but since then, stocks have traded in a narrow range as the bulls and bears appear fairly balanced.
Bears will say storm clouds are still forming for a recession and a deeper bear market as the hawkish Fed is determined to create a recession to end high inflation.
Bulls will say the long-feared recession continues to NOT materialise. And maybe never. Thus, the lows are already in and the new long-term bull market has already begun.
Right now, these two opposing views are fairly evenly matched, resulting in a narrow trading range and a significant drop in volatility. This sleepy action will end when the bulls or bears can wave the flag of victory. Until then…the sleepy range-bound action will continue.”
(Read the full version of the above comment here: The WORST stock market ever – Part 2)
Even if the shares went as high as 4,200 this week. Nothing really changed to win the bull-bear fight convincingly. In fact, most of the major news recently has been negative.
For example, retail sales are only +1.6% year-on-year. Excluding the +4.9% for CPI inflation, US retail is down -3.3%.
This fits with the general high-inflation narrative that consumers are afraid of waiting to buy products, leading to what appears to be a GDP boom in the near term. This is followed by an economic cliff as demand increases. In fact, that harbinger of a recession could be happening now.
Those expecting the Fed to show signs of a turnaround towards lower rates may be disappointed by what they heard this week.
The first to say so was Dallas Fed President Logan The current data does not yet justify the suspension of rate hikes. The next Friday morning, Chairman Powell gave a speech in which he reiterated that inflation is still far too high and that the Fed will be “unwavering” in its goal of cutting prices.
This means bulls are likely to be disappointed once again when they hear the hawkish resolve that the Fed is likely to reiterate at its next announcement on June 14thth. But even that isn’t enough to give the Bears victory.
Investors need to see clear evidence of a recession for the bear market to rebound. This would see stocks fall below the 200-day moving average of 3,976 and likely retest the October lows of 3,491… if not lower. (That break below 3,976 should be your trigger to turn even more bearish).
That brings us back to “catalyst clock“for any events that end this bull/bear trend in a compelling way. Here is the listing of the main events on the calendar that could serve as a catalyst:
5/25 applications for unemployment benefits– This will not be strong enough on its own as investors would expect input into Government Employment Report 6/2. However, with the number of jobless claims approaching 300,000 a week, historically it suggests that the unemployment rate is about to rise for quite a while.
05/31 ADP employment, JOLTs– 2 other job reports, often used as leading indicators of the government’s monthly employment situation.
6/1 ISM Manufacturing, Unemployment Claims- There have been MANY weak readings for the ISM manufacturing index without any real indication that a recession is imminent. However, this is still one of the most important monthly reports for monitoring the state of the economy.
6/2 Employment situation in the state – The number of new jobs this month is expected to fall further to 180,000. Note that population growth requires 150,000 new jobs per month to keep the unemployment rate at this level. Therefore, any move below this level could result in investors forecasting even worse readings. Many eyes will also be on the wage inflation component as this persistent inflation is clearly a nuisance to the Fed.
6/5 ISM Services – was in positive territory last month at 53.4. But if this reading falls below 50 and slips into contraction territory, it would definitely increase the likelihood of an imminent recession.
Fed meeting on 06/14. – More and more investors expect to pause rate hikes. But that’s very different from the move to lower interest rates, which they still claim is a 2024 event. As such, the Powell press conference following the rate hike decision will be closely watched for clues as to what’s next.
All in all, I still think we should take the Fed’s word for it that there will be a recession before inflation is properly contained. And once Pandora’s box is opened, things can quickly get ugly when stock prices drop significantly. Therefore, I am not tempted to join the bulls even as they knock on the door with a possible breakout above 4,200.
Reity, are you saying it’s not possible to break out above 4,200 right now?
I’m not saying that, because anything is possible on the stock exchange.
However, looking back at history, there were many false starts for a new bull market that later failed…and failed miserably.
Most notable is the more than 20 percent rally from November 2008 to early January 2009, which technically marked a new bull market. This attracted many excited investors, but the bear market returned in full force and lower lows (focus on arrows in chart below).
So a brief break above 4,200 without a clear fundamental catalyst would not tempt me to chase stocks as there is a good chance it is onesucker rally“.
Yes, eventually the advent of the next bull market will make a lot of sense. Right now, that’s just not the case, given that the likelihood of an impending recession is still high, resulting in lower corporate earnings and lower stock prices (that’s how the market has always worked… and probably always will be). remain).
So please continue to make sure you have a balanced portfolio with around 50% long equities. Then, when the clear bull or bear catalyst emerges, take the remaining steps to join that train.
What do you do next?
Discover my balanced portfolio approach for uncertain times. The same approach that has clearly outperformed the S&P 500 in recent months.
This strategy was developed using over 40 years of investment experience to recognize the uniqueness of the current market environment.
It is neither bullish nor bearish at the moment. Rather, it is confusing and uncertain.
However, given the facts at hand, we will most likely see the bear market awaken from hibernation and send stocks plummeting again.
We’d love to strategize to not only weather this downturn, but actually thrive. That’s because, with 40 years of investing experience, this isn’t my first time participating in the bear market rodeo.
If you’re curious and want to learn more and see the handpicked trades in my portfolio, please click on the link below to be taken to the real page of what’s happening:
Steve Reitmeister’s trading plan and top tips >
We wish you every success in investing!
Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
CEO, StockNews.com and Editor, Riding Master Total Return
SPY shares fell $0.64 (-0.15%) in after-hours trade on Friday. Year-to-date, SPY is up 9.88%, while the benchmark S&P 500 index is up % over the same period.
About the Author: Steve Reitmeister
Steve is better known to StockNews audiences as “Reity.” In addition to being the company’s CEO, he also shares his 40 years of investment experience Reitmeister Total Return Portfolio. Find out more about Reity’s background and links to his latest articles and stock picks.
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