The tremendous rally for S&P 500 (SPY) this week has more people believing the bull market is at hand. 43 year investment veteran Steve Reitmeister weighs in with his updated market outlook at trading plan. (Spoiler alert: the future for stock prices may not be as bright as advertised). Get the full story below.
Stocks burst through stiff resistance at 4,200 for the S&P 500 (SPY) on Thursday. Then Friday put an exclamation point on the move by closing all the way up at 4,282.
Can we finally call this the new bull market?
And what does that mean for stocks in the days ahead?
These timely 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 be true in time. However, right now stocks fail the official definition which is a 20% gain from the closing low.
So back on October 12, 2022 the S&P 500 closed at its lowest level of 3,577.03. Now add 20% to that equates to stocks needing to close above 4,292.44 to technically be called a new bull market.
(Yes, the market did hit an intraday low of 3,491 in October. But the official measure of bull and bear markets is based on closing prices like shared above).
So as of Friday’s close we are just 10 points away from an official crowning of a new bull market. That event would likely would 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 remember that this rally was all about the announcement of a debt ceiling deal. Yet as shared in my recent article, that outcome was never in doubt because allowing a default is a nuclear option that neither party can afford.
When the irrational exuberance clears out next week investors will be right back to the same bull/bear debate as to whether we could be heading into a future recession. The most recent economic data was a mixed bag in that regard starting with ISM Manufacturing coming in well under expectations at 46.9. Plus, the forward-looking New Orders component plummeted to 42.6 point to weaker results ahead.
Yes, below 50 = contraction. And yes, we have been under 50 since November without a recession forming. But with it directionally getting worse, it is certainly not a positive for those calling for a bull market.
But Reity, how about the strong employment report Friday morning…certainly that is cause for some bullish cheer, right?
Wrong.
In general, the market should feel good about signs of economic strength like 339K jobs added which was a whopping 80% better than expected. However, it’s not a positive thing when the Fed is still very much pressing on the brakes of the economy to tamp down inflation.
One of the most resilient (aka sticky) forms of inflation is wage inflation. That is still too high because the labor market too strong. Thus, if you are a Fed official relying upon the recent data to make your next rate decision…then today’s far too strong employment report will only stiffen their hawkish resolve.
Today’s news still has the odds of a 6/14 rate hike at only 30%. Meaning investors are expecting a pause which the Fed has signaled is most likely. BUT the odds of a rate increase again in July just spiked to 70% which says that investors realize the Fed is not done with their hawkish regime (and that is NOT bullish).
Now consider this chart of the unemployment rate just before the start of each recession:
It is abundantly clear that the unemployment rate is a lagging indicator of recessions as it is looking its effervescent best just before the next recession begins.
But indeed, we do need to see job adds actually roll negative, and unemployment rate spike to confirm that a recession is at hand. Given all the previous false signals of a recession forming…this is what will be necessary to convince investors to sell stocks in earnest once again.
Reity, is it possible that you are wrong and that this is actually the start of the new bull market?
Yes. That is possible which is why my 2 newsletter portfolios are basically 50% long at this time. What you might call balanced and ready to shift more bullish or bearish when more concrete evidence avails itself.
The key at this time is to remember the painful lessons from the 2007 to 2009 bear market (aka Great Recession). Stocks technically rang in a new bull market given a 20% rally from the November 2008 lows into early January 2009. Next thing you know stocks fall another 28% to a final and painful low in March 2009.
These false breakouts are far too common in the modern era given the undue influence played by computer based traders. Their favorite game is pushing stocks past key levels of resistance and support to draw in the suckers…then they reverse course locking in ample profits at the expense of others.
I will get more bullish when the odds of recession truly diminish. As already shared, that is not the case leaving my balanced approach in place.
At this stage I suspect stocks will play around in a range of 4,200 to 4,300 into the 6/14 Fed announcement where they likely to remind folks ONCE AGAIN that there is more work to do. And rates will stay higher for longer. And still don’t plan to lower rates til 2024. And that inflation is too sticky. And that their base case is that a recession will form before they are done with their efforts to get inflation down to 2% target.
Investors seem to have a monthly case of amnesia between Fed announcements. Then sell off as they are somehow surprised by what Powell says time and again at the press conferences. So, I think getting more aggressively long stocks before that mid June announcement seems quite unwise.
What To Do Next?
Discover my balanced portfolio approach for uncertain times. The same approach that has beaten the S&P 500 by a wide margin in recent months.
This strategy was constructed based upon over 40 years of investing experience to appreciate the unique nature of the current market environment.
Right now, it is neither bullish or bearish. Rather it is confused and uncertain.
Yet, given the facts in hand, we are most likely going to see the bear market coming out of hibernation mauling stocks lower once again.
Gladly we can enact strategies to not just survive that downturn…but even thrive. That’s because with 40 years of investing experience this is not my first time to the bear market rodeo.
If you are curious in learning more, and want to see the hand selected trades in my portfolio, then please click the link below to start getting on the right side of the action:
Steve Reitmeister’s Trading Plan & Top Picks >
Wishing you a world of investment success!
Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
CEO, StockNews.com and Editor, Reitmeister Total Return
SPY shares rose $0.08 (+0.02%) in after-hours trading Friday. Year-to-date, SPY has gained 12.32%, versus a % rise in the benchmark S&P 500 index during 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 firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.
The post NOW is it a Bull Market? appeared first on StockNews.com
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There are signs that the S&P 500 (SPY) may finally be ready to break out above 4,200 and claim the start of the new bull market. Unfortunately, the bears have reason to believe that the worst is not yet behind us with early May economic reports looming large in investor decision making. Get Steve Reitmeister’s take with trading plan and top picks in the commentary below.
4,200 for the S&P 500 (SPY) is a vital level for the market. Above it lies a new bull market. Below it the bears can still claim victory.
Indeed, stocks were running up to that battle line once again this week.
Why? And what does that mean for the final bull/bear outcome for the market?
That will be the focus of this week’s commentary.
Market Commentary
On Thursday we found out that Q1 GDP was much lower than expected at only +1.1% growth when 2.3% was expected. The primary reason was that things slowed down considerably in March.
On top of that the Fed’s preferred inflation measure, Personal Consumption Expenditures (PCE), was higher than feared at +4.2% versus the previous reading of +3.7%. This should obviously have investors worried about the Fed’s “higher rates for longer” stance as we roll into their next announcement on Wednesday 5/3.
In fact, the combination of slower growth and higher inflation on Thursday had more commentators talking about Stagflation. That was an economic disease in the 1970’s that was part of a long secular bear market that did not really take off until 1982 when inflation started to come down and the economy got healthy once again.
Sounds like this would all equate to another Risk Off day. NOPE…think again!
The result was a shocking +2% rally on Thursday with tech leading the way thanks to the recent earnings success for Microsoft and Meta (Facebook). And then nearly another 1% was tacked on Friday to close at the highest level since early February.
Gladly it is not just tech showing promise this earnings season. As the graphic below shows that just a week back on 4/20 Wall Street expected Q1 earnings to be down -9.75% year over year. And yet now with half of the companies in S&P 500 reporting that has been more than halved to only -4.28%.
Before you start getting too bullish on this positive earnings trend, unfortunately the bad news shows up in the next 2 columns. That being where estimates are getting slightly worse for the next 2 quarters. This coincides with the GDP report which shows that softness started end of Q1 and may be accelerating.
That is why estimates are still poor and why it may not necessarily be time to celebrate the end of the bear market. So at this stage the impetus from earnings season may have a touch more upside up to the line at 4,200.
To get a decided bullish break above 4,200 or to retreat back into bearish territory is awaiting the next round of catalysts. Like some of the key economic reports on the docket for next week:
5/1 ISM Manufacturing
5/3 ISM Services, Fed Rate Decision
5/5 Government Employment Situation
Note that the Chicago PMI report from Friday is considered the best leading indicator of where ISM Manufacturing will land. In that case it was still in contraction territory at 48.6. However, on the bright side that is the highest reading since September 2022.
So directionally it could be read that things are improving. We’ll know if that is also the case for ISM Manufacturing on Monday.
The point is that we are coming up to a moment of truth. Do bulls have the necessary fuel to break above 4,200 and claim victory? Or does the threat of recession still loom large enough to stay under that key level?
It is possible that we have our answer by the end of next week given the 3 key reports noted above.
Unfortunately, we may just have enough information to stay confused and in a limbo under 4,200 a while longer.
The trading plan remains balanced near 50% invested. If break bullish, then keeping adding attractive Risk On positions to get up closer to 100% invested.
If break bearish, then reduce amount invested with a very conservative mix of Risk Off stocks.
So let the chips fall where they may and we will trade accordingly.
What To Do Next?
Discover my balanced portfolio approach for uncertain times. The same approach that has beaten the S&P 500 by a wide margin so far in April.
This strategy was constructed based upon over 40 years of investing experience to appreciate the unique nature of the current market environment.
Right now, it is neither bullish or bearish. Rather it is confused…volatile…uncertain.
Yet, even in this unattractive setting we can still chart a course to outperformance. Just click the link below to start getting on the right side of the action:
Steve Reitmeister’s Trading Plan & Top Picks >
Wishing you a world of investment success!
Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
CEO, StockNews.com and Editor, Reitmeister Total Return
SPY shares fell $0.20 (-0.05%) in after-hours trading Friday. Year-to-date, SPY has gained 9.17%, versus a % rise in the benchmark S&P 500 index during 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 firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.
The post Is the New Bull Market at Hand? appeared first on StockNews.com
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The future outlook for the stock market (SPY) is getting more confusing…not less. Why is that? What does that mean for stocks in the weeks ahead? And what is the best trading plan to stay ahead of the pack? 40 year investment veteran Steve Reitmeister shares his views in the commentary below including his top 7 stocks for today’s market. Read on below for more.
Six months ago, stocks made fresh lows of 3,491. Since then, we have seen a hefty bounce to our current `perch at 4,137.
So are we in still in a bear market…or has the new bull emerged?
That vital discussion, along with our trading plan with top picks, will be at the heart today’s commentary.
Market Commentary
Technically speaking we are still in a bear market. That is because the definition of a new bull market is when the S&P 500 (SPY) rises 20% from the lows. Here is that math:
3,491 October Lows x 20% = 4,189
However, some will say that was only an intraday low and more appropriate to measure based upon the closing low of 3,577 set on October 12. That would mean stocks would need to break above 4,292 to be considered in bullish territory.
The point is that we are getting closer to a bullish breakout. Yet where we stand at this precise moment is a state of limbo which is what creates a trading range.
One could say it’s as wide as the recent lows of 3,855 up to 4,200. But I think most of the near future will be spent in a tighter range of 4,000 to 4,200.
Why Are We in Limbo?
The threat of recession still looms large. This was reinforced Wednesday because the FOMC minutes discussed their fear of recession later in 2023 because of residual damage from banking issues.
On the other hand, we have heard about the threat of recession since early 2022…and it keeps NOT happening.
This has led many traders to not hit the sell button too hard on any whispers of recession. They have been faked out too many times on that in the past only for the market to bounce back ferociously as no recession unfolded.
This is creating an upward bias in the market the last 6 months. Yet will be hard to see too much more upside until the bears are thoroughly convinced that no recession will be in the offing.
Meaning the clear new bull market breakout will not happen until more bears are convinced of an improving forecast. When more of them turn tail and start buying in earnest is when the new bull market will begin.
BUT WHAT IF A RECESSION DOES FORM?
Indeed, those recessionary storm clouds still linger especially as the Fed’s primary goal is to stamp out inflation by “lowering demand“. Lowering demand is just a fancy way of saying they want to slow down the economy.
In a perfect world that is a soft landing near 0% GDP before the economic growth engines restart. In that scenario we have already seen the stock market lows and the next bull market would emerge.
However, just as likely is that all the steps to “lower demand” actually spark a recession with negative growth, job loss and yes, much lower stock prices (below the October lows).
Recent shocking declines in ISM Manufacturing, Service and Friday’s Retail Sales report do paint the picture of an economy potentially tipping over into negative territory. And again, remember that the FOMC minutes did point to their increased concerns that the recent banking issues will be harmful to the economy likely leading to a recession by end of the year.
As long as these serious threats linger, then there will be enough people rightfully bearish to prevent the overall market from heading much higher.
The sum total of this stand off between bulls and bear is a trading range environment likely with serious resistance at 4,200 as was found in February. I don’t even believe the May 3rd Fed announcement has the muscle to change that outcome.
Thus, I could see this trading range scenario in place for a good part of the summer until investors can better determine the true likelihood of recession.
Range Bound Trading Plan & New Pick Coming Monday
One of the classic investor sayings is that we do not have a stock market as much as we have a market of stocks. Meaning that each individual stock has the potential to rise no matter the overall market environment.
It is much easier to appreciate the virtue of this saying when you understand that over 2,000 stocks were in positive territory in 2022 even as the bear market got its claws into most others. And amazingly over 1,000 of those stock rose 50% or more.
This begs us to always be on the lookout for the very best stocks and funds to outperform. And in my 43 years of investing experience nothing does a better job of that than the POWR Ratings scan of 118 different factors that point to a stock’s likelihood of future success.
So even though I fully appreciate the potential for recession and deeper bear market, I still want to be pinpointing the very best stocks and funds to hold in our portfolio.
What To Do Next?
Discover my balanced portfolio approach for uncertain times. The same approach that has risen well above the pack so far in April.
This strategy was constructed based upon over 40 years of investing experience to appreciate the unique nature of the current market environment.
Right now, it is neither bullish or bearish. Rather it is confused…volatile…uncertain.
Yet, even in this unattractive setting we can still chart a course to outperformance. Just click the link below to start getting on the right side of the action:
Steve Reitmeister’s Trading Plan & Top Picks >
Wishing you a world of investment success!
Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
CEO, StockNews.com and Editor, Reitmeister Total Return
SPY shares rose $0.69 (+0.17%) in after-hours trading Friday. Year-to-date, SPY has gained 8.26%, versus a % rise in the benchmark S&P 500 index during 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 firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.
The post Bull or Bear or Neither? appeared first on StockNews.com
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