It’s been nearly 40 years since investors faced high inflation as the cause of recessions and bear markets. Yet, since that time, five bear markets have occurred.
The point is that the majority of today’s investors have never seen inflation cause a recession…or they don’t know how to go back to their memory bank and react appropriately to the information at hand. This begs us to return to investing in KISS.
instead of the usual meaning: keep it simple
In 2023, it will be: leave inflation aside
The reasons for this pearl of investment wisdom are fully explained in this week’s Lightmeister Total Return commentary.
There have been quite a few welcome bear market rallyes over the past year, based on the idea that inflation is declining. This means the Fed will soon move to a more dovish policy. situation.
It feels like the same setup is happening on February 1st.st Rate hike decisions and announcements. Despite the S&P 500 (SPY) breaking above its long-term trend (a.k.a. 200-day moving average) above 3,978, I remain bearish.
Yes, we can say we finished two times in a row. But when his psychologically significant 4,000 level looms large overhead, it’s hard to call it a breakout, and the bears have the upper hand until that critical hurdle is crossed.
Back to the KISS theme. leave inflation aside
Bulls continue to say,a long time”. I have a feeling that the message will be shouted from the rooftop again at the next meeting on February 1stst Leads to the sale of another stock.
To clarify, there is a softening in inflation. There are no two ways about it. But persistent wage and housing inflation will only make it more likely that the Federal Reserve (Fed) will keep its restrictive policy on hold for some time, while slipping into a recession in the first half of this year.
And over the past few weeks, several Fed officials have said:a long time’ Mantra. That includes Chairman Powell.So just a few weeks later he was on February 1st.st They would say that long time has passed bordering on madness.
So if that message gets across clearly in a few weeks, it could pull back from its recent highs, as it did in mid-August and early December.
But that really misses the main point of today’s commentary. Focusing on inflation misses a much more important signal coming from the economy.
Indeed, the economy is teetering in recession. And that should have a far greater impact on investor decision-making than the state of inflation.
You’ve heard me write enough about the carpal tunnel syndrome-inducing deteriorating economic outlook. So today we speak to one of his industry heavyweights to explain why inflation isn’t the only market outlook. And why should we separate it from the larger recession issue, which is at the forefront of the bull/bear debate…and when investors realize their focus on inflation has been misplaced, before long It is likely that it will return to the center.
I have often quoted John Mauldin in the past.dizzyAn economic concept to make it understandable. He reached the highest level again this week with his article “The Punchbowl is Gone.”
The title implies that the boom brought to the economy by looser monetary policy is now past. So the road from here will be tougher for the Fed, businesses, and investors.
In this article, he shares many of his thoughts collected from other leading investment thinkers. So, to give him a better understanding of the road ahead of us, I’ll share the best parts of that article (spoiler alert: I’m still pretty bearish).
“…bond market wizard Jeff Gundlach puts the probability of a recession at 75% this year. That seemed low to me…”
CORBU’s Samuel Rines added: “No one wants to say ‘a recession is good’, but the FOMC is strongly suggesting it.”
“Can it get any worse? Sure. Fed policy changes have lagged behind. It appears to be producing the desired gains (lower inflation) without the accompanying market crash), which gives us room to continue.”
David Rosenberg sees a 100% chance of a recession this year. Here’s why. The data dates him back to 1959, but he had never seen such a string of weaknesses in the past. Annualized in such a timeframe he had a contraction of 5.6% and failed to foreshadow a recession within a quarter or two. . Convert 9 to 9 back to 59. The recession is right in front of us (and if it’s so ‘woven into’ why is the consensus calling for positive her EPS growth next year?)”
Tuesday provided further proof of the economic downturn as the NY Empire State Manufacturing Report plummeted to -32.9. The lowest level since May 2020, when Covid was ravaging the economy. This and the Chicago PMI, considered the most influential of the region’s manufacturing reports, are both performing poorly.
That’s right, the bulls have started to take charge of 2023 thanks to a combination of New Year’s optimism and signs of easing inflation. maybe.
Let’s wrap up.
It seems unwise to join the bulls now that a recession is more likely. The same is true if you are bullish on expectations of his Fed pivot on February 1st.stGiven the facts at hand, this seems downright fantastical.
This is why I remain bearish at this point. He added a 3x Inverse ETF to his portfolio last weekend as stocks surged against resistance.
The bottom makes more sense than the top. Trade accordingly.
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The plan has worked wonders since it went into effect in mid-August, yielding big returns to investors as the market fell.
And now is the perfect time to unload the load as it addresses yet another bear market rally before stocks hit even lower lows in the coming weeks and months.
If you’ve survived the investment wave this past year, feel free to ignore it.
However, if the bearish discussion above has you curious as to what happens next, consider staying up to date with me.The Bear Market Game Plan” contains details of 10 unique positions in a timely and profitable portfolio.
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Good luck with your investment!
Steve Lightmeister…but everyone calls me Reity (pronounced “Righty”).
CEO, Stock News Network and Editor, Lightmeister Total Return
spy stock. Year-to-date, SPY is up 4.01% for him, while the benchmark S&P 500 index is up 1% over the same period.
About the Author: Steve Lightmeister
Steve is better known to StockNews audiences as “Reity”. Not only is he the company’s CEO, but Lightmeister Total shares his 40-year investment experience in his return portfolio. Learn more about Reity’s background, links to our latest articles, and more on stocks here.
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