The S&P 500 (SPY) appears to be entering bullish territory above 4,200. However, history shows many examples of how this could be nothing more than a Suckers rally. That’s why you should listen to Steve Reitmeister’s most recent market commentary, including a clear trading plan and top picks for this unique market environment. Get the full story below.
Stocks rallied last week on news that a debt ceiling showdown will likely be averted. To that I say a big, warm…
DUH!
It’s because politicians never leave their finger in that socket for long. It is always magically resolved in no time.
As the smoke cleared from this rally, investors realized they lacked the drive to truly break into bullish territory above 4,200 for the S&P 500 (SPY). This likely means more limbo and range trading 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’s the case…and what are the potential catalysts on the calendar that could produce the next big move for the stock market.
Market Commentary
The short version of my current market outlook has been nicely summarized as follows from my previous comment:
“There has been a tug of war all year between the bulls and the bears. It would appear that the bulls took the lead early on as stocks climbed near 4,200 in early February…but since then , the stocks traded in a narrow range where the bulls and bears seem fairly balanced.
The bears will say that storm clouds are still forming for a recession and a deeper bear market thanks to a hawkish Fed determined to create a recession to end high inflation.
The bulls will say that the dreaded recession is still NOT happening. And maybe never will be. So, the lows are already there and the new long-term bull market has already started.
Right now, these 2 opposing views are fairly even, creating a narrow trading range and a huge drop in volatility. This sleepy action will end when the bulls or bears can wave the victory flag. Until then…the drowsy distance action will continue.”
(Read the full version of the comment above here: The WORST Stock Market Ever – Part 2)
Even though stocks have rebounded this week all the way up to 4,200. Really nothing has changed to convincingly win the bull/bear battle. In fact, most recent major news has been negative.
Like retail sales which only reached +1.6% year-on-year. When you remove +4.9% for inflation (CPI), it shows a decline of -3.3% for US retail.
This fits with the general high inflation discourse that consumers are afraid to wait to buy goods, leading to an apparent short-term GDP boom. This is followed by an economic cliff as demand has been pulled forward. Indeed, this precursor to recession may be happening.
Those looking to the Fed for signs of a pivot to lower rates should be disappointed by what they heard this week.
The first was Dallas Fed President Logan, who said current data did not yet warrant pausing rate hikes. The following Friday morning, President Powell delivered a speech again emphasizing that inflation was still far too high and that the Fed would remain “firm” in its aim to lower prices.
This means bulls should once again be disappointed to hear the hawkish resolve the Fed is likely to reiterate in the next announcement on June 14th.e. But even that isn’t enough to win Bears Day either.
Investors will need to see unequivocal evidence of a recession en route for the bear market to reappear. This would have stocks breaking below the 200-day moving average at 3,976 and likely retesting the October lows of 3,491…if not lower. (This break below 3,976 should be your trigger to turn more bearish).
This brings us back to “catalyst watchfor any events that end this bull/bear showdown in a compelling fashion. Here is the roll call of key events on the calendar that could act as a catalyst:
5/25 Unemployment Insurance Claims– This will not be strong enough on its own, as investors will seek collaboration in the 6/2 report on the government’s employment situation. However, if jobless claims start approaching 300,000 per week, this historically indicates that the jobless rate has been on the verge of rising for some time.
5/31 ADP Jobs, JOLT– 2 other employment reports which often serve as leading indicators of what lies ahead with the government’s monthly employment situation.
6/1 Manufacturing ISM, Unemployment Insurance Claims- there were a LOT of weak readings for the manufacturing ISM with little signal that a recession was at hand. However, it remains one of the key monthly reports to watch on the health of the economy.
6/2 Employment situation in the government- Job creations are expected to continue to fall to 180,000 this month. Note that population growth requires 150,000 job creations per month to maintain the level of the unemployment rate. Thus, any move under this mark could cause investors to predict even worse readings to come. Also, many eyes will be on the wage inflation component, as this persistent inflation has clearly embarrassed the Fed.
6/5 ISM Services – Was in positive territory at 53.4 last month. But if that cracks below 50 into contraction territory, it would certainly increase the odds of a coming recession.
6/14 Fed Meeting – More investors expect them to suspend rate hikes. But that’s quite different than pivoting to lower rates which they still claim is a 2024 event. So the Powell press conference following the rate hike decision will be closely watched for clues on that. who will follow.
Overall, I still believe we should take the Fed’s word that a recession will occur before inflation is properly contained. And once Pandora’s box is opened… then things can go downhill quickly with much lower stock prices along the way. That’s why I’m not tempted to join the bulls even as they knock on the door with a potential break above 4,200.
Reity, are you saying it’s not possible to go over 4,200 now?
I’m not saying this because with the stock market, anything is possible.
However, looking at history, there have been many false starts to a new bull market that then failed…and failed miserably.
Most notable is the more than 20% rally from November 2008 to early January 2009 which technically marked a new bull market. This attracted plenty of eager investors only for the bear market to return with a vengeance with lower lows en route (focus on the arrows in the chart below).
So just breaking above 4,200 for a little while without a clear fundamental catalyst wouldn’t entice me to chase stocks due to the high probability of it being a “sucker gathering“.
Yes, at some point the emergence of the next bull market will make a lot of sense. Right now, that just isn’t working given the still-elevated risks of a coming recession causing lower corporate earnings and lower stock prices (the market has always worked that way… and the suspect always will).
So please continue to stay balanced in your portfolio, which means around 50% long stocks. Then, when the bullish or bearish CLEAR catalyst emerges, make the rest of your moves to join that bandwagon.
What to do next?
Discover my balanced portfolio approach for uncertain times. The same approach that has largely beaten the S&P 500 in recent months.
This strategy has been developed based on over 40 years of investment experience in order to appreciate the unique nature of the current market environment.
Right now it is neither bullish nor bearish. She is rather confused and uncertain.
Yet, given the facts in our possession, we will most likely see the bear market come out of hibernation mauling stocks lower once again.
Fortunately, we can adopt strategies to not only survive this downturn…but even thrive. That’s because with 40 years of investment experience, this isn’t the first time I’ve been in the rodeo of the bear market.
If you’re curious for more and would like to see the handpicked trades in my portfolio, please click the link below to start getting on the safe side of the action:
Steve Reitmeister’s Trading Plan and Top Picks >
I wish 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 $0.64 (-0.15%) after hours trading on Friday. Year-to-date, SPY has gained 9.88%, versus a % rise in the benchmark S&P 500 over 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 company, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, plus links to his most recent articles and stock picks.
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