The bounce back to 4,000 for the S&P 500 (SPY) made some sense, states Steve Reitmeister of Reitmeister Total Return.

It was time for bulls to take the wheel after three weeks of a mauling bear market. However, the move above 4,100 was comical.

Even more insane were traders eagerly buying stocks pre-market on Tuesday expecting inflation to only come in at 8%. Thus, when the reading was 8.3% they soiled their beds and stocks tanked in a hurry to provide the biggest one-day drop of the year.


What on earth would make these people think that 8% inflation is okay? Heck, even if it came in at 7.8% that is still about four times above the Fed's target with many more hikes and much more economic pain to come.

Let's get back on board the sanity train with this week's review of bear market conditions. This comes hand in hand with an updated trading plan of how we not just survive but actually thrive during the 2022 bear market.

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Market Commentary

Tuesday’s -4.32% shellacking of the stock market was not a surprise to anyone watching my updated marketing outlook shared Monday in the POWR Platinum monthly webinar. We discussed why it's still very much a bear market. And how similar the action is to 2000-2003 with many “suckers rallies” sprinkled in to trick investors before the true and lasting bottom was found.

Perhaps the most important part was reviewing the new “Fed Commandments” etched in stone by Chairman Powell and handed down to investors from the mountaintops in Jackson Hole. It basically proclaimed to anyone who will listen...

Thou Shalt Expect:

Long-term battle with inflation.

Higher rates through at least 2023...if not longer.

Economic PAIN!

That presentation is a good place to get started today to cover why we should take the Fed at its word and prepare for more economic pain and market downside to come. And yes, Tuesday’s horror show was but a small taste of what is to come.

Now back to today’s action.

Inflation is still here.

This is only a surprise to those who were solely basing their view of inflation on the price at the gas pump. And yes, gladly that is down greatly across the country.

Unfortunately, there is much more to the inflation equation which was on full display in today’s far too hot +8.3% reading. This headline from CNBC tells the rest of the story:

Inflation isn’t just about fuel costs anymore, as price increases broaden across the economy

As we dig into the details, we find that the food at home index is up a whopping 13.5% year over year. Not far behind will be an increase in medical services.

Then we find that “sticky inflation” for wages and rents are not showing any signs of slowing. They are called sticky because they stick around and are not so easily dispensed with.

This is where we get back to a great divide in investing.

Anyone with even a modest understanding of economics appreciates that:

High Inflation + Hawkish Fed = Recession = Bear Market

Whereas those that talk about charts and price action...or who believe that the stock market is just some video game played on their screens think that what goes down must go up.

Yes, in time every bear market ends and prices will go higher. But the full measure of economic pain to come has not been dealt out. And thus, the final stock market bottom has not yet arrived. And thus, there is no virtue or staying power in these ill-fated rallies.

To be clear, I still think we find the bottom somewhere between 3,000 and 3,180. The latter demarks a 34% decline from the all-time highs (4818) which is the average drop for a bear market. The reason this one could very well fall more than average is that valuations for the market got a bit extended thanks to the low-rate environment.

As you know we are a great deal above the paltry 1.4% yield for the ten-year Treasury at the time the market made its all-time highs in January. Today those rates made it to a new multiyear high at 3.4%. And probably will end up 5%+ when all is said and done.

In that environment, stocks are worth less because people can make a higher than normal “risk-free” rate in bonds. So, the price for stock valuations will need to come down enough to make it attractive for investors to take that risk once again.

Now let me shift to another interesting topic that has come up many times with customers who are struggling to understand how this is a bear market when employment I still looking so strong. Here is the answer I emailed to a client recently that tries to simplify that vital topic:

“I totally get the quandary which is part of the market's current struggle.

First, employment is a lagging indicator. Meaning it is one of the last things to go bad in the economy. Kind of like a smoke detector that goes off well after the house is halfway burnt down.

Second, high inflation and recessions go hand in hand.

Third, the Fed has told us point blank that they need to fight inflation and it will cause pain. And yes, that pain extends to labor markets which they noted specifically.

So it is not about the current is about where things are headed. The only question is whether the damage will be a lot or a little.

If a little, then a soft landing will emerge with a shallow bear market. Meaning that the recent lows of 3,636 hold up and then a new bull market begins.

If more damage is on the way, then a deeper recession and bear market unfolds where we head lower than June lows and likely more in the neighborhood of 3,000 to 3,200 when all is said and done.

I believe the latter scenario is more likely...but open to the soft landing scenario which is why we are hedged and not just straight up short.”

As for our hedged portfolio, it held up wonderfully today with a +0.67% gain while the market tanked -4.32%. Now imagine how well it will do as stocks have probably 20%+ more downside til we find the true bear market bottom.

With that much downside to go, it is not too late to act. And don’t forget that it only takes about 5 minutes to bolster your portfolio with the hedged strategy recommended in the Reitmeister Total Return.

The time to act is now!

Portfolio Update

Hopefully, the majority of you have already gotten the bear market memo...and have made defensive moves in your portfolio like that in our hedged strategy.

That hedge was nicely improved today by adding ample allocations to two of the most conservative groups; Consumer Staples and Utilities.

Some may be wondering why I chose FXG or RYU when there were many similar options out there. The simple answer is that they were some of the best performers and see no reason for that not to continue. If your research points to another ETF in the group...then go for it.

The key ingredient is that these groups historically decline much less than others during a bear market. And this should allow more total profits to accrue to us from the inverse ETFs of PSQ, RWM, and SH.

Also noteworthy is how well our two trades to short bonds played out today (RISR and SJB). The latter was the most impressive as more and more people got the memo of a likely recession on the way and how the rates for junk bonds should SOAR.

Definitely not too late to get on board the SJB train. But don’t wait too much longer as it appears ready to leave the station.

Closing Comments

I know today’s commentary seems all too certain of a bear market falling into place with more upside coming our way from the hedged portfolio. Indeed, this is what makes the most sense to me, but do have to admit that it is not a sure thing.

That is why we have a hedged strategy and not just straight short the market. As someone reminded me on the Platinum Webinar yesterday, the market can stay illogical longer than you can stay solvent. Therefore, the hedge seems like a safer way to play the heightened odds of a more bearish downside to come.

If things magically turn positive on the fundamental front pointing to the start of the next bull market, then all the easier to emerge from the hedge to straight up bullish and enjoy that upside.

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