The S&P 500 (SPY) staged a powerful rally since hitting a low of three,810 on Might twentieth. Sadly the extra I take a look at the information in hand…the extra involved I’m that that is the formation of a bear market…the extra defensive measures I’m making in my publication providers, Reitmeister Complete Return and this one, POWR Worth. On this week’s Market Commentary I spell out extra particulars on why the percentages of bear market proceed to develop. Learn on under for extra….
(Please get pleasure from this up to date model of my weekly commentary printed June 3rd, 2022 from the POWR Worth publication).
In final week’s POWR Worth commentary I shared extra insights that equated to a better chance of bear market on the horizon (Learn it right here).
Since then the preponderance of contemporary proof can also be pointing in that detrimental route. Which means the “thought virus” of bear market continues to unfold.
Most notable is the up to date learn of GDP Now from the Atlanta Fed. A pair weeks in the past I used this identical indicator right here as proof of financial power at +2.5% for Q2.
That has now slid to solely +1.3% after the newest slate of financial outcomes have been underneath expectations. Directionally that’s unhealthy information.
Sure some will level to ISM Manufacturing on Wednesday rising from 55.4 to 56.1 as a constructive. Or that Authorities employment at the moment confirmed 390K job positive factors which was increased than anticipated.
Nevertheless, let’s contemplate that Manufacturing typically activates a dime and a strong one month tells us little about what occurs subsequent. Or the truth that ISM Companies at the moment got here in decrease than anticipated at 54.5 from 55.9 final month.
Plus the providers sector is 4X bigger than manufacturing.
As for the seemingly good employment numbers…the unhappy reality is that employment is a lagging indicator. Which means it typically would not sign bother to effectively after a recession has began to take root.
Type of like a fireplace alarm that does not go off til after the constructing has burnt to the bottom.
Additionally of curiosity, the competing ADP employment report from Thursday was woefully underneath expectations at solely 128K jobs added. That’s the slowest tempo because the onset of Covid.
Plus traditionally it has been way more correct at exhibiting jobs tendencies than the Authorities model.
Going past financial information is extra proof of the bearish thought virus spreading to extra locations. Here’s a slate of essentially the most telling detrimental headlines proving out that time:
This is the e-mail Elon Mush despatched to all Tesla staff a couple of 10% head rely discount
Jamie Dimon (JPMorgan Chase CEO) says “brace your self” for an financial hurricane
You Have Been Warned
Sure, I may preserve going and going. And if you happen to doubt it do Google searches for phrases like Bear Market or Job Layoffs and see how a lot comes as much as help this detrimental notion.
Proper now I’d say that odds of recession and bear market is north of fifty%. That additionally implies that it’s not a carried out deal.
That certainly the Fed may orchestrate a delicate touchdown for the financial system as they elevate charges and that the latest nasty correction was sufficient ache earlier than a return to bull market circumstances.
Our transfer right down to 69% lengthy in POWR Worth is a nod in that route. That certainly a bear market isn’t a given and this extra conservative stance provides us a greater balancing act to get extra defensive or aggressive as wanted.
Which means if a bear market is afoot then seemingly we’ll promote extra of our aggressive positions and rotate to bigger, decrease beta, conservative positions within the portfolio. Additionally seemingly scale back whole lengthy publicity to simply 50%.
However, if we keep away from bear market territory and get again on a critical and lasting bull run, then we’ll do the alternative.
That may imply getting again to 100% lengthy in additional aggressive positions. That features a increased dose of small caps, development shares and better beta investments.
Do not forget that economics is a delicate science. Which means it’s not precise making it arduous to make concrete predictions.
The identical is clearly true for the inventory market by extension since recessions and bear markets go hand in hand.
I level this out to assist recognize the step-by-step method we’re utilizing to get roughly bullish in our portfolio.
That is as a result of it’s totally harmful to guess flawed and get trampled by the market going the opposite route. Higher to do extra nuanced strikes as issues unfold.
What To Do Subsequent?
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CEO StockNews.com & Editor of POWR Worth buying and selling service
SPY shares closed at $410.54 on Friday, down $-6.85 (-1.64%). 12 months-to-date, SPY has declined -13.29%, versus a % rise within the benchmark S&P 500 index throughout the identical interval.
In regards to the Writer: Steve Reitmeister
Steve is best identified to the StockNews viewers as “Reity”. Not solely is he the CEO of the agency, however he additionally shares his 40 years of funding expertise within the Reitmeister Complete Return portfolio. Be taught extra about Reity’s background, together with hyperlinks to his most up-to-date articles and inventory picks.
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