Today I write a new chapter in this saga as the stock market action is still lackluster, which is pushing many investors to the sidelines, states Steve Reitmeister of Reitmeister Total Return.
Thus, a good time for us to discuss why this is happening...what the future holds...and why it still pays to stay invested even when the environment seems trendless as it does now.
Let’s start with a picture of the S&P 500 (SPX) the past month to set the stage:
Don’t let the seeming peaks and valleys fool you. In total, we have been playing in a narrow 2% range for the past month. Some will call this range bound. Some will call this the tightening of spring before the next big breakout. But everyone will call it boring as hell!
The latter explains why interest in the stock market has dropped so precipitously for individual investors. This shows up in 15-30% page view drops for most major investment websites focused on the retail (individual) investor market.
The Next Logical Question Is: WHY is This Happening?
There has been a tug-of-war taking place all year between bulls and bears. It would seem that bulls grabbed the early lead given how stocks shot up near 4,200 by early February...but since then stocks have traded in a narrow range where bulls and bears seem fairly balanced.
Bears will say that the storm clouds are still forming for a recession and deeper bear market thanks to a hawkish Fed dead set on creating a recession to put an end to high inflation. Bulls will say that the long-feared recession keeps not happening. And maybe never will. Thus, the lows are already in, and the new long-term bull market has already begun.
Right now, these two opposing views are pretty evenly matched creating a narrow trading range and a considerable drop in volatility. That sleepy action will end when the bulls or bears can wave the victory flag. Until then...the sleepy range-bound action will continue.
Why Do I Continue to Believe the Bears Will Win?
The short version is to say the Fed typically predicts a soft landing when they raise rates yet actually produced a recession 75% of the time. Whereas this time around they are predicting a mild recession will occur by the end of the year. So if they usually understate the outcome...then probably a rougher recession is on the way which no doubt points to the return of the bear market, and lower lows on the way.
Also, recent economic data continues to be lackluster starting Monday with the Empire State Manufacturing report tumbling from +10.8% last month to a depressingly low -31.8 this month. Then on Tuesday Retails Sales came in a notch better than expected at +1.6% which complete imbeciles in some media outlets touted as a positive. The correct view is to appreciate that this report does not account for inflation. Now consider this revised math:
+1.6% year-over-year increase in Retail Sales
-4.9% CPI annual inflation rate
= -3.3% decline in US retail sales. Ouch indeed!
Yet to be fair, we have seen many false flags of recession over the past year. The key continues to be any signs that would put to a real weakening of the employment market. Those looking for a leading indicator should stay focused on the weekly Jobless Claims report which spiked 10% week over week to 264,000. If that starts to knock on the door of 300,000+ weekly claims that is a sign that the unemployment rate will start to rise. And once it starts rising it typically stays on that war path for a long time. That event would certainly have more bulls running for cover as bears take charge of the market. Until that is the case, then expect this boring trading range to be the norm.
Why Stay Invested?
Again, many investors have lost heart as they believe this range-bound action leaves them no opportunity to carve out profits. HOGWASH! Consider the expression that there is “always a bull market somewhere”. That was true even in 2022 as the overall market was tumbling lower. That’s because the bull market was found by shorting stocks or buying inverse ETFs. These trades produce gains because down = up in a bear market.
And even now during a range-bound market, there are still plenty of positions panning out. You just need to dig a little deeper to find them which is the advantage we enjoy with our POWR Ratings system. This explains why the Reitmeister Total Return is up +1.93% since the start of April even though the S&P 500 is in the red. And small caps in the Russell 2000 are taking a more serious beating.
No, I am not saying that is the most amazing outcome ever. But it does show how you can squeeze a lemon off a stock market and make some profitable lemonade. This is why you stay invested even during the humdrum times. Plus, it is sometimes hard to be on the sidelines and work your way back into the market as it breaks out of range. Often that FOMO train speeds up fast letting ample profits slip through your fingers.
Long story short, stay invested in this market. Just make sure you are doing it the right way. And then I will keep you abreast of how the bull/bear tug of war plays out so we can find ourselves pulling in the right direction.