Inflation news provides more signs the worst in the stock market (SPY) is not behind us. Earnings season is providing more signs the worst is not behind us. Economic reports are providing more signs the worst is not yet behind us. The only confusion is all the silly little “suckers rallies” that pop up between the next leg lower. My advice…don’t be a sucker. Read on below for this week’s commentary to explain why the bear is not done mauling stocks. That will be at the heart of our discussion in this week’s commentary….
The headline reads that the S&P 500 (SPY) rallied today because the Retail Sales report was so impressive. Well if that is true, then why did the GDP estimates fall to -1.5% after the report according to the Atlanta Fed???
So again, almost all trends point to things getting worse. And that many of the bounces are nothing more than “suckers rallies” which are so common during bear markets.
Further proof of why the bear market is still in charge is the early painful results this earnings season.
The major banks, JP Morgan, Morgan Stanley and Wells Fargo, all disappointed which is odd because a rising rate environment is supposed to be pure heaven for bank earnings. And yet, they see results stalling.
Here is what Jamie Dimon, CEO of JPMorgan had to say about that:
“But geopolitical tension, high inflation, waning consumer confidence, the uncertainty about how high rates have to go and the never-before-seen quantitative tightening and their effects on global liquidity … are very likely to have negative consequences on the global economy sometime down the road,”
It’s not just banks souring the mood this earnings season. The food industry giant, Conagra Brands, tumbled -8.5% on their quarterly results as inflation is taking a serious bite out of their results.
Speaking of inflation, you probably already know the bad news from this past week that both CPI (+9.1%) and PPI (+8.2%) remain too hot to handle.
There is an oddity to this because there are other measures showing that commodity prices have declined about 17% since the peak in early June. This includes an obvious reduction in prices at the gas pump this past month.
These improvements in commodity prices should at least be showing up in the Producer Price Index which is the leading indicator of where Consumer Price Index winds up in the future.
Here again, + 8.2% for PPI this month is no relief after a very similar +8.3% the previous month. And thus no evident relief for consumers in the weeks ahead…and thus more reason to believe this damage will show up in a deepening recession and bear market.
If you are unclear as to why this high inflation is a problem, then remember that the Fed very much believes in maintaining a more palatable 2% inflation rate.
The recent “off the chart” inflation readings means that the Fed will stay ever vigilant to crush this runaway inflation. With likely many more rounds of rate hikes to come.
This increases the odds of harming the economy, which also harms the stock market (SPY).
And if you are unclear why the Fed hates inflation…its because it is so harmful to the consumer who makes up nearly 2/3rds of the economy.
Plain and simple consumers are not keeping up with inflation when you consider that average annual wages have only increased 5.1% in the past year.
Yes, technically speaking the US consumer is 3% poorer right now than a year ago even though their pay check is larger. This pain is showing up more and more in places like Consumer Sentiment which came in at 51.1.
Note that normal conditions should read 100. So we are talking about the lowest readings in this important survey since 1980.
What does 2022 have in common with 1980?
You guessed it…runaway inflation which the Fed finally tamed a couple years later thanks to Fed Chair Volker finally putting an end to that nonsense. Unfortunately, this led to a recession and bear market. Indeed this Fed regime has the very same plans.
They “hope” to not create a recession. But we are well past the point of no return. Remember that a recession is most likely already here thanks to -1.6% GDP in Q1 and all things pointing to another negative read for Q2.
Add to that the next rate hike coming on 7/27…and a lot more rate hikes to come…then it only spells more damage to the economy…lower corporate earnings…lower share prices.
Do NOT get suckered into any of these ill advised and ill fated rallies. That is just computer based traders playing video games with the stock market (SPY) for short term gains. Not real long term investors making thoughtful decisions based upon what comes next.
That reasoning only leads to one conclusion. Prepare for the bear to maul stocks a good while longer.
What To Do Next?
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Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
Editor, Reitmeister Total Return & POWR Value
SPY shares closed at $385.13 on Friday, up $7.22 (+1.91%). Year-to-date, SPY has declined -18.31%, versus a % rise in the benchmark S&P 500 index during the same period.
About the Author: Steve Reitmeister
Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.
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