There is a lot of bearish energy right now. Even the Fed seems to be calling for a recession… and pundits who aren’t worried about a recession are worried about stagflation. (For those a few years behind economic position 101, this is where we have high inflation and rising unemployment.) And yet, a cursory glance at the stock market will make you think happy times are here again. Which side is right? Read on to find out my choice….
(Please enjoy this updated version of my weekly comment originally posted April 13th.th2023 in POWR Stocks Under $10 Newsletter).
Let’s look at a few reasons why people are bearish.
– Banking chaos + credit tightening could trigger a sharp drop in economic activity in the US.
Unemployment is more likely to worsen than improve
– Potential for higher interest rates as the next Fed meeting approaches
– Likely decline in earnings growth in the first quarter
– Stocks mostly trade at high multiples
– We still haven’t reviewed October lows
– Inflation is still more than double the Fed’s target.
And here are some reasons why people are optimistic.
– Because everyone else is bearish
I’m kind of joking, but also kind of not.
Yes, some technical indicators are bullish, such as the fact that the S&P 500 is holding above 4100 and appears to be on the verge of a break above the 4200 level, which would mark the start of a new bull market.
There are also a large number of investors who are looking forward to the moment when the Federal Reserve will suspend its rate hike strategy, which should soon be based on their original final target rate.
And there is definitely some truth to the idea that when everyone else is bearish, the market becomes bullish.
Once everyone and their dogs have sold all their shares… and there are no more sellers left in the market… that means the only direction the market is going is up. (Or aside.) This is the only reason why reverse investing is a strategy.
And speaking of the Fed, even they are bearish… and they are the ones orchestrating all of this.
According to the minutes of the Fed’s March meeting, “Given their assessment of the potential economic impact of recent developments in the banking sector, staff forecasts during the March meeting included a moderate recession starting later this year, with a recovery over the next two years.”
This usually does not bode well for stocks. But just look at how well the bears did in the first quarter. After some fall in the S&P 500 (SPY), and the Nasdaq managed to beat the naysayers and turn a profit.
Personally, I’m still more bearish than bullish, which I know seems to be a popular choice.
But I remain a strong believer in our “stock market” strategy, which looks for solid companies that are ready to make a profit no matter what happens in the market.
In fact, barring any major changes, tomorrow I have a few more choices.
Conclusion
We are going to continue buying cautiously for now. We don’t want to come to the end of this year and look back at all the achievements we may have missed sitting on the sidelines waiting for the perfect opportunity to get into the game.
But we’re going to keep an eye on the bearish action/fundamentals to make sure we don’t get torn apart.
What to do next?
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All the best!
Meredith Margrave
Chief Growth Strategist, StockNews
POWR Stocks Under $10 Newsletter Editor
Shares of SPY closed Friday at $412.46, down $1.01 (-0.24%). Since the beginning of the year, the SPY has gained 8.26% compared to the percentage gain of the benchmark S&P 500 over the same period.
About the author: Meredith Margrave
Meredith Margrave has been a renowned financial expert and market commentator for the past two decades. She is currently the editor Power growth And POWR promotions up to $10 newsletters. Learn more about Meredith’s past, as well as links to her latest articles.
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