(Please enjoy this updated version of my weekly commentary from the Reitmeister Total Return newsletter).
Our portfolio swelled by 5% this past week…a good notch above the S&P 500 gain…and a good tonic for what ails ya!
In fact, most everything went according to our plan with stocks hurtling towards bear market territory at 3,855 before support came and a hearty bounce ensued. Unfortunately, we have seen several three day bounces this year that did not stop the downward pressure. So it’s hard to feel confident that this time is different.
But it does feels different. Why? That vital topic will be the focus of this week’s commentary.
Today we should talk about 2 really good reasons why we may have just seen the end of the bear market scare in 2022.
Market Commentary
First, and most importantly is the fundamental outlook. The only logical way for stocks to cross over into bear market territory (under 3,855) is for there to clear and present danger of a looming recession.
And yes it is true that…
High inflation + Hawkish Fed = bad soil for stock market gains
But it doesn’t necessarily equal a recession either.
This means there was ample reason for investors to press pause on the bull market to see what happens next with the economy. In that process they needed to wring out much of the speculative excess in the stock market and stonk market…Sorry GameStop owners…play time is over ;-)
This put investors in wait and see mode for signs of future economic health or decline. It did not help that the initial Q1 GDP reading was shockingly under estimates at -1.4%. That kicked selling into overdrive towards the border of bear market town at 3,855.
Yet as investors looked up at the moment of truth, they saw that the early Q2 economic data does not say decline…or recession. In fact, as of today the GDP Now estimate for Q2 from the Atlanta Fed just rose to +2.5% growth rate after the welcome release of stronger than expected Retail Sales & Industrial Production reports. Couple that with another impressive earnings season and there is little reason to fear a recession is in the air…and thus little reason to hit the sell button any longer.
This is the heart of the fundamental story that says we may be closing the chapter on this nasty correction…and don’t have to worry about it devolving further into a downright bear market.
Now let’s flip over the conversation to the realm of sentiment and the technical side of the stock market equation.
4,000 was logical support for stocks as every century mark has been for the index. Yet stocks cut below it like a hot knife going through butter.
From there the decline sped up to reach maximum fear levels at 3,855 (under that = bear market territory). Not surprisingly the market found support just 3 points above at 3,858.
This is NOT a coincidence!
This is professional traders and computers alike saying that there is just no LOGICAL reason to switch from bull to bear.
Granted the movement of the market is not always logical. But that is on a day to day basis. Over time logic does prevail as it did in this case.
We crashed through logical resistance hurtling towards bear market territory.
THAT WAS CAPITULATION…THAT IS WHERE THE SELLING ENDS AND BUYING BEGINS.
Reity, are you saying it just a gung ho bull market from here?
We could very well be on the verge of a 2-3 week FOMO run where stocks go up nearly every session. Then all of a sudden you have broken back above all key moving averages and we get back to contemplating when new highs will be made. Naturally the bear conversation fades in the distance.
I sense that is the strongest possibility. On the other hand I could also see us going into a consolidation period between 3,855 and 4,100. In that time bulls and bears wrestle over the outcome a while longer. But if the fundamental facts remain positive (aka solid economic growth) then even that period will end with a break to the upside.
It is for those reasons that I put 4 new trades in the portfolio yesterday to lean more into the possibility for stock market gains. So far, so good on that front.
Just to be 100% clear, I am not saying the bear market threat is over. The keys to that outcome lie in the economic data.
If it weakens, and odds of recession increase, then we will be back on the 3,855 door step quickly. However, the longer we go on without that outcome…the more the bull is back in charge…and the more likely that we return to the old highs and beyond.
For now the risk is to the upside. So if you are sitting on a pile of cash, or large short position, then please reconsider that decision at this time as most signs point higher from here.
What To Do Next?
Discover my current portfolio of 11 hand picked stocks and 3 ETFs inside the Reitmeister Total Return portfolio that are perfect for this hectic market environment. The same portfolio that firmly beat the market last year and is doing so once again in 2022.
This service was built to find positive returns in all market environments. Not just when the bull is running full steam ahead. Heck, anyone can profit in that environment.
Yet when stocks are trending sideways, or even worse, heading lower…then you need to employ a different set of strategies to be successful.
Come discover what my 40 years of investing experience can do you for you.
Plus get immediate access to my full portfolio of 11 stocks and 3 ETFs that are primed to excel in this unique market environment. (This includes 2 little known investments that actually profit from rising rates which right now is the best trade in town).
Wishing you a world of investment success!
Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
CEO, Stock News Network and Editor, Reitmeister Total Return
SPY shares . Year-to-date, SPY has declined -13.76%, 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.
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