I emphatically denounced final week’s rally with seeming break above the important thing 4,200 resistance stage for the S&P 500 (SPY).
The quick model is to emphasize that this rally is completely hole and solely being led by a handful of mega caps. No breadth…and thus no credibility.
The complete model of the story might be discovered right here: The Fallacy of the Bullish Argument.
This market is at a crucial juncture. Bulls are desperately looking for a transparent inexperienced mild to race forward whereas bears remind everybody of the crimson flags that might ship shares zooming decrease.
Let’s overview the potential 4 potential catalysts in June and the probably consequence for shares.
Market Commentary
The financial calendar is chock filled with potential catalyst going into mid June. At this stage bulls want the bears to desert hope and be a part of their trigger. That can solely occur if there may be simple proof {that a} Recession will not be forming and the economic system is simply getting stronger.
On the opposite facet of the ledger, the bears must cease speaking concerning the “potential of recession” and present it coming true in actuality. That may awaken bearish spirits from their a number of month hibernation resulting in shares getting mauled briefly order.
Listed below are the 4 key dates that might function the catalyst for the subsequent massive inventory transfer:
Thursday June 1st = ISM Manufacturing: There have been MANY weak readings for ISM Manufacturing with out really signaling a recession was at hand. Nonetheless, that is nonetheless one of many key month-to-month experiences to observe on the well being of the economic system.
Most unlikely to persuade buyers all by itself. However this report may set a tone the place buyers search affirmation from the opposite month-to-month experiences that might tip the scales strongly in a single route or one other. Word that most of the regional manufacturing experiences of the previous month have been weak and thus foreshadows related poor readings for this nationwide report.
Friday June 2nd = Authorities Employment Scenario: Job provides are anticipated to maintain ebbing decrease all the way down to 180,000 this month. Word that inhabitants development calls for 150,000 job provides per thirty days simply to take care of the present unemployment stage. So, any motion beneath that mark may have buyers predicting a spike within the unemployment charge.
Additionally, many eyes shall be on the Wage part as that sticky inflation has been clearly bothersome to the Fed. That’s at the moment anticipated to return in at +4.4% 12 months over 12 months. (It does not take a math wizard to understand how a lot larger that’s than the two% Fed inflation goal and what I’m about to say within the subsequent part).
Monday June 5th = ISM Providers: This report was in optimistic territory at 53.4 final month. But when that cracks beneath 50 into contraction territory it undoubtedly would enhance the percentages of a recession forward. Not serving to issues was the latest Retail Gross sales report which confirmed a -3.3% 12 months over 12 months decline after eradicating the synthetic advantage of inflation.
Wednesday June 14th = Fed Assembly: Most buyers predict that they are going to pause elevating charges. And that’s fairly probably. Nonetheless, that’s fairly totally different than pivoting to decrease charges which they nonetheless declare is a 2024 occasion. So, the Powell press convention that follows the speed hike resolution shall be carefully watched for timing clues for any future pivot.
Please do not forget that the Fed coordinates lots of messaging within the speeches of Fed officers as a part of their mission to have clear communication with buyers. And the CLEAR message this previous month has been “extra work to do” to deliver down inflation.
As in larger charges for longer and never discount in charges this 12 months. As in the identical factor they’ve mentioned all 12 months lengthy…and little doubt will say once more on June 14th…little doubt disappointing bulls who proceed to NOT get the message straight.
How Do I Assume Its All Going to Flip Out?
This commentary from just a few weeks again solutions the above key query: Why Steve Reitmeister is Becoming More Bearish
Merely acknowledged, if the Fed is betting on a recession sooner or later due to their efforts to tamp down the flames of inflation…then you need to guess on that too!
With that in thoughts, now let me share with you essentially the most factor I learn this weekend. That being feedback from famed Swiss cash supervisor Felix Zulauf on an efficient early recession warning and what that tells him about our present recession watch:
“We solely know by hindsight when the recession began, however there may be an indicator you may watch that provides you some indication when the beginning of the recession is right here, with out understanding for positive. And that’s when the inverted yield curve begins to flatten.
“And truly, in the previous couple of days or two weeks or so, we noticed some flattening of that yield curve, and this could possibly be a sign that we’re very near the start of a recession. I do imagine that such a recession shall be quick, not lengthy. It could possibly be deep as a result of I believe the Fed and different central banks are overtightening. They drive ahead by trying into the rearview mirror as a result of inflation is a lagging indicator, and financial coverage is a number one indicator.
“So, I believe they overtighten, and it could possibly be a pointy or deeper recession, however a lot shorter as a result of as soon as it is right here and as soon as it is acknowledged, the Fed and different central banks will are available in and switch round and go from tightening to easing comparatively rapidly.
“I believe that within the third quarter, we are going to see that the Fed will hand over its QT coverage, the quantitative tightening, and if the market declines the best way I count on, and it may result in decrease lows, I nonetheless have a goal that I advised my subscribers in late “21, about 30% down, which is the low 3,000 within the S&P and perhaps 9,000 within the Nasdaq or one thing like that. Meaning decrease lows beneath the October lows, someday within the second half in the direction of later this 12 months.”
And here’s a correlated chart displaying the two 12 months vs. 10 12 months charge inversion over time and its relation to recessions (grey bars):
Certainly, you may see that the recessionary durations didn’t occur on the deepest moments for the yield curve inversion. As an alternative, it occurred after it flattens out and infrequently begins to enhance.
Now take that into consideration as you have a look at the far proper of the chart the place the latest inversion has began to flatten out. And correlate that with the ten% anticipated drop in company income in Q2. And now correlate that to Fed expectations of a recession forming by finish of the 12 months earlier than they begin decreasing charges.
Bulls have loved a righteous rally since October as a recession didn’t emerge. This made it applicable for shares to bounce again to present ranges.
Nonetheless, to proceed larger from right here they should ensure that fears of recession are useless and buried. And as shared above, there may be nonetheless good motive for warning.
Thus, I cannot be becoming a member of the bullish rally right now. As an alternative, I’m going to proceed my vigilant look ahead to the subsequent massive catalyst that may conclude the bull/bear debate as soon as and for all. But if you happen to requested me now to foretell what is going to occur down the street…I’d most definitely guess on the bearish consequence.
What To Do Subsequent?
Uncover my balanced portfolio strategy for unsure occasions. The identical strategy that has overwhelmed the S&P 500 by a large margin in current months.
This technique was constructed based mostly upon over 40 years of investing expertise to understand the distinctive nature of the present market surroundings.
Proper now, it’s neither bullish or bearish. Somewhat it’s confused and unsure.
But, given the information in hand, we’re almost certainly going to see the bear market popping out of hibernation mauling shares decrease as soon as once more.
Gladly we will enact methods to not simply survive that downturn…however even thrive. That is as a result of with 40 years of investing expertise this isn’t my first time to the bear market rodeo.
If you’re curious in studying extra, and wish to see the hand chosen trades in my portfolio, then please click on the hyperlink beneath to begin getting on the suitable facet of the motion:
Steve Reitmeister’s Trading Plan & Top Picks >
Wishing you a world of funding success!
Steve Reitmeister…however everybody calls me Reity (pronounced “Righty”)
CEO, StockNews.com and Editor, Reitmeister Total Return
SPY shares fell $0.27 (-0.06%) in after-hours buying and selling Tuesday. Yr-to-date, SPY has gained 10.29%, versus a % rise within the benchmark S&P 500 index throughout the identical interval.
Concerning the Writer: Steve Reitmeister
Steve is best recognized to the StockNews viewers as “Reity”. Not solely is he the CEO of the agency, however he additionally shares his 40 years of funding expertise within the Reitmeister Total Return portfolio. Study extra about Reity’s background, together with hyperlinks to his most up-to-date articles and inventory picks.
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