40 year investment veteran Steve Reitmeister is not a permabear by any stretch of the imagination. Thus, when he becomes cautious on the stock market’s (SPY) outlook it pays to listen. Read on below for Steve’s current market outlook and trading plan to outperform even as a bear market unfolds in the days ahead.
(Please enjoy this updated version of my weekly commentary from the Reitmeister Total Return newsletter).
Traders are at it again.
They are playing a game that rarely works. That being to rally on bad news in the hopes it means the Fed will change their tune and become less hawkish on raising rates.
Remember that the Fed is filled with academics, not day traders. This means they are very deliberate: Read “sssssssllllllllooooooooowwwww”
Meaning that the logic behind the recent rally is not well founded and likely short lived. With that I will spell out more of the reasons as to why I have become increasingly bearish with a hedge in place to protect us from likely future downside.
Get the full story below in this week’s Reitmeister Total Return commentary.
Yesterday on the Platinum Members webinar I gave a pretty thorough accounting of why my stock market outlook is tilting more and more towards the bearish mindset. Not 100% settled on that outcome. More in the 50-60% probability range.
Yes, the main point of today’s commentary is that I give the current rally very little merit. That is especially true today as the famed GDP Now indicator from the Atlanta Fed slipped further from +1.3% to +0.9% for Q2 after the weaker than expected International Trade report.
By the way it was the shocking weakness in International Trade that was the main reason behind the -1.5% contraction of the economy in Q1. That negative trend is clearly not resolved.
You may be looking at that +0.9% reading and saying to yourself…Hey, the economy is growing.
But let’s be clear this reading has slid all the way from +2.5% a few weeks back to +0.9% today. Directionally that is very bad news saying that the freshest economic data are indeed weaker and likely by the end of the quarterly cycle could be in negative territory again.
Let’s not forget that the definition of recession is 2 straight quarters of economic contraction. We already have 1 foot in that grave and bit by bit it looks increasingly like the second foot is not far behind.
The oddity of this negative news today is that stocks went higher and bond rates went lower. The only way to logically explain that is what I shared in the intro. That being that traders think that this spate of bad news will have the Fed immediately rethink their plans to raise rates to fight the flames of inflation.
The Fed does NOTHING immediately.
Again, they are slow and deliberate academics working by committee. Plus they strongly desire to give the market clear indications of their intentions. And those CLEAR intentions are to raise rates again and again and again to raise inflation while “hopefully” causing little damage to the economy. That outlook will NOT turn on a dime.
Sorry folks. The Fed is WAY behind the curve when they should have been raising rates as far back as a year ago. This is what leads a well respected market commentator like John Mauldin to recently declare that there are No Soft Landings.
Then you have the World Bank toady issuing an alarming forecast about 1970’s style stagflation with many countries likely to fall into recession. (Read that here).
Next up is Morgan Stanley joining the bearish chorus of other leading bank and investment firms. (Read that here).
What you have to appreciate is that folks like Morgan Stanley, Goldman and JP Morgan all have a natural bullish bias. Because if they scare investors too much, then they run out of stock funds with higher fees to cash with virtually no fees.
Instead these groups usually give a “read between the lines” type of neutral outlook. Or that things are mixed. That is code for WATCH OUT BELOW!!!
But now they are actually saying “watch out below” which is an alarming concept that we need to appreciate increases the odds of bear market and downside share prices.
For these reasons, and all the others recently shared in commentary, is why I have created a hedged portfolio. This is the right balancing point until we have a more definitive statement of market direction.
A break below 3,855 into bear market territory will likely start a longer term move to -34% or beyond. That’s because the average bear market decline is 34% from the previous peak.
Unfortunately this time around, the ultra-low rate environment allowed stocks to have higher than normal valuations that need to be squeezed out. That is why a 40% decline is not out of the question.
If that does unfurl, we will sell more of our long positions to become net short the stock market making ample gains as stocks wind their way to bottom.
On the other hand, if the 40-50% chance that the bull market proves victorious, then we will do the opposite. That being to sell off the inverse ETFs from the hedge and just buy more stocks to become 100% long the market once again.
Remember that I am not a perma bull or perma bear.
Rather I am an investor with 40 years of experience who comes to this outlook objectively given the facts in hand. And if a recession and bear is what is in store, then it’s not time to mope or play the ostrich with our heads buried in the sand.
Instead we will stare those facts in the face and enact strategies that put us in the best position to succeed. That is what is happening now and we will continue to adjust as the facts evolve.
Do not expect perfection along this path. There truly is no such thing with investing. We just want to do more right than wrong creating outperformance. Hopefully a lot more right than wrong.
That has been the case over my career…and over the course of this year. I look forward to that being the case as we move forward.
By the way, it is never lost on me the enormous responsibility of managing an investment newsletter like Reitmeister Total Return. It is not just about the ability to have free speech or spit out some random picks.
Rather I fully understand that many of you have saved up money for decades to invest based on my advice. The outcome of which greatly affects your financial well being…and thus your ability to take care of those that you love.
It is with full appreciation of those facts that I continue to make these moves in the best interest of my family and yours.
What To Do Next?
Discover my current hedged portfolio that will not only protect you from a forthcoming bear market, but also lead to ample gains as stocks head lower.
This hedged strategy perfectly fits the mission of my Reitmeister Total Return service. That being to provide positive returns…even in the face of a roaring bear market.
Yes, its easy to make money when the bull market is in full swing. Anyone can do that.
Unfortunately most investors do not know how to generate gains as the market heads lower. So let me show you the way with my unique blend of 7 stocks and 6 ETFs that are perfectly suited for today’s bear market conditions.
And then down the road we will take our profits on these positions and start bottom fishing for the best stocks to rally as the bull market makes it rightful return.
Come discover what my 40 years of investing experience can do you for you.
Plus get immediate access to my full portfolio of 7 stocks and 6 ETFs that are primed to excel in this difficult market environment.
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 -12.20%, 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.