The tremendous rally in the S&P 500 (SPY) this week has more people believing that the bull market is imminent. 43-year-old investment veteran Steve Reitmeister shares his updated market outlook on the trading plan. (Spoiler alert: The future of stock prices may not be as bright as advertised.) The full story is below.
Stocks break strong resistance at 4,200 for S&P 500 (SPY) on Thursday. Then Friday put an exclamation mark and closed at the top of 4,282.
Can we finally call this the new bull market?
And what does that mean for stocks in the coming days?
These hot topics will be the focus of today’s commentary as well as our trading strategy going forward.
market commentary
There are already many people claiming this is the new bull market. And it might come true in time. Currently, however, stocks do not meet the official definition, which is a 20% rise from the closing low.
So, on October 12, 2022, the S&P 500 closed at its low of 3,577.03. Now adding 20% ​​means stocks need to close above 4,292.44 to technically call a new bull market.
(Yes, the market actually made an intraday low of 3,491 in October. However, the official measurement of bull and bear markets is based on the above closing prices.)
As of Friday’s close, we are only 10 points away from the official crowning of a new bull market. This event would likely spark a serious FOMO rally as more bears would throw in the towel, but first a word of caution…
DON’T BELIEVE THE HYPE!
Please keep in mind that this rally has been all about the announcement of a debt ceiling agreement. But how shared my current articleThat outcome was never in doubt, as allowing default is a nuclear option that neither party can afford.
When the irrational exuberance subsides next week, investors will return to the same bull/bear debate about whether we may be headed for a recession in the future. Recent economic data has been mixed in this regard, starting with an ISM manufacturing index that came in well below expectations at 46.9. In addition, the forward-looking component of orders fell to 42.6 points due to weaker results ahead.
Yes, below 50 = contraction. And yes, we’ve been under 50 since November with no recession forming. But as things continue to deteriorate, that certainly doesn’t bode well for those calling for a bull market.
But Reity, how about Friday morning’s strong payrolls report… surely that’s cause for some optimistic cheering, isn’t it?
Incorrect.
In general, given signs of economic strength such as the creation of 339,000 new jobs, the market should be satisfied, a whopping 80% more than expected. However, it’s not a good thing if the Fed is still hard on the economy to curb inflation.
One of the most resilient (also stubborn) forms of inflation is wage inflation. That is still too high because the job market is too strong. So if you’re a Fed official relying on the latest data for his next interest rate decision, today’s overly strong jobs report will only reinforce your hawkish resolve.
According to today’s news, the probability of a 6/14 rate hike is still only 30%. That means investors are anticipating a pause, which the Fed has indicated as highly likely. BUT the probability of another rate hike in July has just jumped to 70%, meaning investors are realizing that the Fed is not done with its hawkish regime (and this is NOT bullish).
Now consider this chart of the unemployment rate just before the onset of each recession:
It is perfectly clear that the unemployment rate is a lagging indicator of recessions, as it peaks just before the next recession begins.
But in fact, we need to see that job creation actually turns negative and the unemployment rate rises to confirm that a recession is imminent. Given all the previous false signals of a looming recession, this will be necessary to convince investors to start selling stocks in earnest again.
Reity, is it possible that you are wrong and that this is in fact the start of a new bull market?
Yes. That is possible, which is why my two newsletter portfolios are currently 50% long. What could be described as balanced and poised to turn more bullish or bearish given more concrete evidence.
The key at this point is to remember the painful lessons learned from the 2007-2009 bear market (aka the “Great Recession”). Technically, stocks heralded a new bull market as they rallied 20% from the November 2008 lows to early January 2009. Next, shares fell another 28% to a final and painful low in March 2009.
These false breakouts are far too common in modern times given the over-influence of computerized traders. Her favorite game is pushing stocks above key resistance and support levels to lure the suckers. Then they reverse course and secure plentiful profits at the expense of others.
I’ll get more optimistic if the likelihood of a recession really diminishes. As mentioned, this is not the case with my balanced approach.
As of this writing, my guess is that the Fed’s 6/14 announcement was about stocks taking a hit. in a range of 4,200 to 4,300 where they will probably remind people ONCE AGAIN that there is still a lot to do. And prices will stay higher for longer. And we still don’t plan to cut rates until 2024. And inflation is too persistent. And that their base case is that there will be a recession before they are done with their efforts to bring inflation down to the 2% target.
Between Fed announcements, investors seem to have a monthly bout of amnesia. Then they sell because they’re kind of surprised by what Powell keeps saying at the press conferences. As such, I think it’s pretty unwise to take more aggressive long positions in equities ahead of the mid-June announcement.
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 were up $0.08 (+0.02%) in after-hours trade on Friday. Year-to-date, SPY is up 12.32%, while the benchmark S&P 500 index has posted a percentage gain 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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