When you look at the S&P 500 (SPY) surge on Friday…and pretty much all of June…and heck, pretty much all year, it sure looks like a new bull market is within reach. tomorrow. However, investment veteran Steve Reitmesiter points out “that was then…and this is now.” Be sure to tune in for his stock outlook, trading plan and top picks for 2H2023. Get the rest of the story below.
Stocks closed on a positive note on Friday. This puts a bullish exclamation mark on the first half of the year!
It’s now… but what happens later is a little more mysterious.
Yes, the current trend could continue. Or maybe we will have to be more careful in the months to come.
Let’s take some time today to consider what’s happening in the 2n/a half of the year so that we can work out the best trading plan to take advantage of the market.
Market Commentary
The most comprehensive way for me to share my stock outlook and trading plan is to watch the presentation I just gave for the MoneyShow which covers the following topics:
- Review of…How did we get here?
- bear case
- Bull Case
- And the winner is??? (Spoiler: more likely bear case)
- Trading plan with specific trades like…
Watch it here >
Assuming you watched the video, allow me to add a few additional color comments.
This starts with admitting that the recent price action is downright bullish. Even previously noted issues with the market’s lack of breadth are improving as gains finally make their way past the S&P 500’s (SPY) tech mega-caps into other stocks, including small and mids. capitalizations.
Unfortunately, on the fundamental front, I still see things as mostly bearish. The key being the likelihood of a future recession causing lower corporate earnings and therefore lower stock prices.
Using the popular recession probability measure where people compare the reversal between 3 month and 10 year treasuries it now looks like this with a recession probability of just over 70% from here May 2024:
So how can stocks rise so much as the future likelihood of a recession darkens?
This fits with the “Boy Who Cried Wolfversion of the investment story. Just replace “Wolf” with “Recession”.
Investors are tired of hearing about the likelihood of a recession because it is still NOT happening. At this point they won’t react until the recession/wolf is at their doorstep with blood dripping from its fangs. THEN investors will sell stocks for good. Until then, it seems to be…”Party on Garthfor investors.
You may have heard a snippet today that the Core PCE inflation reading was slightly better than expected. Since it is the Fed’s preferred measure of inflation, it was seen as the primary catalyst for the stock rally.
Now the facts…
The +4.6% year-over-year inflation is indeed better than last month’s reading of 4.7%. But unless I am mistaken, it is far from the target inflation rate of 2% required by the Fed.
Additionally, the month-over-month reading came in exactly as expected at +0.3%, still indicating the current rate of increase between +3.6% and 4%. Again, still too hot.
This explains why the probability of a rate hike at the next Fed meeting on 7/26 is now 87% from 72% a week ago and from 53% a month ago. This means that this reading of inflation does not make anyone think that the Fed will stop putting its foot on the neck of the economy with future rate hikes.
Don’t forget that on Wednesday Chairman Powell once again noted that 2 more rate hikes are on the menu. This was accompanied by the usual sound bites about more work to do…and higher rates for longer…and please stop your crack pipe if you think we’re going to lower rates this year (OK… that last part was me, not Powell 😉
There are plenty of key economic reports coming this week like ISM Manufacturing, ISM Service and Government Employment. However, unless they SCREAM RECESSION, I suspect investors will remain blissfully ignorant.
No… I’m not saying that the bull market will continue to rise non-stop from here. I say he’s not ready for a real sell-off until the evidence of a recession is seemingly irrefutable.
Note that often the end of a quarter ends with a bang followed by a moan. That’s why I’m not chasing this market. We have enough in the market to participate in the upside without extending our necks too far lest our heads be cut off.
I still think we have a mild case of irrational exuberance that should give way to a modest pullback and a trading range for early July. This would be the logical choice as investors wait for more clues to underline the likelihood of a recession and whether that pushes us to be more bullish…or back into our bearish caves.
But… who said the market made sense? 😉
For now, a balanced portfolio closer to 50% invested seems most appropriate given the facts at hand. We will continue to monitor the situation and make any necessary adjustments. Don’t be too late to react to this recessive wolf when it starts heading your way.
What to do next?
Check out my full market outlook and trading plan for the rest of 2023. It’s all available in my latest presentation:
2n/a Stock market outlook for the 2023 semester >
Just in case you’re curious, let me draw the curtain a bit more on the main content:
- Review of…How did we get here?
- bear case
- Bull Case
- And the winner is??? (Spoiler: more likely bear case)
- Trading plan with specific trades like…
- Top 10 Small Cap Stocks
- 4 inverted ETFs
- And much more!
If these ideas interest you, please click below to access this essential presentation now:
2n/a Stock market outlook for the 2023 semester >
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 were trading at $443.25 per share on Friday afternoon, up $5.14 (+1.17%). Year-to-date, SPY has gained 16.78%, 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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