There is a lot of recessionary energy out there right now. Even the Fed seems to be calling for a recession… and experts who aren’t worried about a recession are worried about stagflation. (For anyone a few years removed from Econ 101, that’s where we have sticky high inflation and rising unemployment.) And yet, a quick look at the stock market makes you think it’s time to be happy again. Which side is correct? Read on to find out my pick….
(Please enjoy this updated version of my weekly commentary originally published on April 13mIn 2023 POWR Stocks Under $10 Newsletter).
Let’s look at some of the reasons why people are depressed.
– Banking chaos + tighter credit could cause a big drop in US economic activity
– Unemployment is likely to get worse rather than better
– Potential for higher interest rates approaching the next Fed meeting
– Q1 earnings growth likely to slow
– Stocks are mostly trading on higher multiples
– We still haven’t reviewed the October low
– Inflation is still more than twice the Fed’s target rate
And here are some reasons why people are bullish.
– Because everyone else is retarded
Now, I kind of joke, but I’m also not one.
Yes, there are some technical indicators that are bullish – like the fact that the S&P 500 is above 4,100 and is on the verge of breaking above the 4,200 level, which would mark the start of a new bull market.
There are also a large number of investors who are waiting for the time when the Federal Reserve will pause its rate hike strategy, which should soon be based on its initial terminal target rate.
And there is certainly some truth to the idea that when everyone else is bearish, the market turns bullish.
Once everyone and their dog has sold all their stock… and there are no sellers left in the market… that means the market has only one direction left to go. (Or sideways.) That’s the whole reason why contrarian investing is a strategy.
And as for the Fed, they’re bearish too… and they orchestrate this whole thing.
According to minutes of the Fed’s March meeting, “Given their assessment of the potential economic effects of recent banking-sector developments, staff projections at the time of the March meeting included a mild recession starting later this year, with a recovery over the next two years.”
That doesn’t bode well for stocks in general. But look how well things turned out for the bears in Q1. Shortly after, the S&P 500 (the spy) and the Nasdaq managed to overcome the naysayers and take advantage.
Personally, I’m still more bearish than bullish, which I know is the popular choice.
But I’m still a strong advocate for our “market of stocks” strategy that is geared toward acquiring solid companies regardless of what the market is doing.
In fact, barring any major changes, I have a few more picks coming your way tomorrow.
conclusion
We will continue to shop cautiously for now. We don’t want to get to the end of this year and sit on the sidelines waiting for the perfect opportunity to step in, looking back on all the gains we missed.
But we will keep an eye on bearish measures/fundamentals to ensure we don’t get hurt.
What to do next?
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All the best!
Meredith Margrave
Chief Growth Strategist, Stock News
Editor, POWR Stocks Under $10 Newsletter
SPY shares closed down $-1.01 (-0.24%) at $412.46 on Friday. Year-to-date, SPY is up 8.26%, the % gain of the benchmark S&P 500 index over the same period.
About the Author: Meredith Margrave
Meredith Margrave is a well-known financial expert and market commentator for the past two decades. He is currently the editor of POWR growth And POWR Stocks Under $10 Newsletters Learn more about Meredith’s background with links to her most recent articles.
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