Category: Marketgauge

Target Investing

The 9 Advantages of This Type of Investing

Can you make sense of this?

Two weeks ago, the markets experienced a brutal sell-off (S&P 500 down -6.1%) due to inflation rhetoric, rising gas prices, 75 bp Fed Funds rise, and the fastest acceleration of the 10-year US Treasury in history.

Last week the S&P 500 jumped 6.7% and recovered all of the prior week’s losses.

It appears as if all the bear market narratives have all but disappeared. The 10-year interest rates dropped back down to close to 3.0% (from 3.25% the week before), oil fell over 5% (from $120 to $113), and the major banks (JPM) insinuated that we may dodge a recession. The stock market liked this commentary.

Did things change that fast? Did all the world’s problems go away?

We don’t think so.

While the inflation story may have temporarily peaked, it is far from over.

If you look back to the 70’s when we last experienced this type of out-of-control inflation, it took several years and significant interest rate hikes to get it under control. Inflation peaked at 12%, gasoline was in short supply, interest rates peaked at 16%, and stagflation plagued the economy for almost 10 years (1973 to 1982).

It is nearly impossible to believe that inflation has subsided in any meaningful way.

As we have written before, inflation is punishing and insidious. It lasts far longer than anyone expects. In fact, as Mish has pointed out on numerous shows this week, inflation and especially stagflation will be around for many months, if not years. See her explain the severity of the situation in a few of her national media appearances from Friday below.

Cheddar News: Market Wrap Up for a Wild Week

Fox News with Neil Cavuto: With So Many Current Events- What Will the Market Do?

UBS Wealth Management: Volatility and Uncertainty Continue

Friday’s fierce rally was nothing more than a short-term reprieve.

Coincidentally, rallies like Friday’s are even more likely at the end of a quarter because this is when Wall Street and the investment community are rebalancing and repositioning their portfolios.

It’s in Wall Street’s best interest to drive prices up near the end of the quarter to take advantage of fee billing which is based on balances on June 30.

The Inflation Problems Persist

Friday, oil prices (and oil-related stocks) were back up a few dollars and the world began talking, yet again, about the energy supply constraints in Europe that would likely spill over to the US.

In the past month, we’ve seen oil spike to a high of $124 a barrel, come down to $107 and end the week at $113. Gasoline still hovers around $5.00 a gallon nationally. The precious commodity remains volatile and has a short-term impact on interest rates and the broad stock market. (See oil chart from this week below).

The Problem Is Bigger Than Oil

We are starting to hear from a few manufacturers, (it was TESLA this past week), who began whispering about laying off highly compensated employees due to the scarcity of products and the ongoing debacle of the global supply chain.

Even worse, some foods are increasing in scarcity, and we are approaching an important holiday where people will be tested as they’ll have to choose to buy food for the family or gas to get to work or visit family.

The Problem Is Bigger Than Oil

We are starting to hear from a few manufacturers, (it was TESLA this past week), who began whispering about laying off highly compensated employees due to the scarcity of products and the ongoing debacle of the global supply chain.

Even worse, some foods are increasing in scarcity, and we are approaching an important holiday where people will be tested as they’ll have to choose to buy food for the family or gas to get to work or visit family.

We remain in the early innings of a difficult and challenging market. There are just too many factors, including potentially disappointing earnings, that are upon us in the near future to expect anything more than a bear market bounce.

Why Target Investing Is So Important (and Leads To Good Risk Management)

If you watched any of the Mish replays from above, you inevitably heard Mish talk about the current economic environment as a “Trader’s Market.”

Mish’s Premium strategy, and our Algo-based mechanical investment solutions, employ methodical RISK MANAGEMENT. As a result, several of them are positive on the year.

“You can’t hit a target if you don’t know what it is”

• Tony Robbins

“Nobody ever lost money taking a profit”     

• Bernard Baruch

Here are a few key takeaways from implementing MarketGauge Target Investing (Risk Management):

Click here to continue reading the 9 advantages from implementing MarketGauge Target Investing and review this week’s text and video market insights from Big View.

A Moment of Truth.

Ways to Help You Deal With A New Reality

The truth can be difficult to hear.
Telling the truth is also hard when the message is not what the recipient wants to hear.
Dealing with the truth is even harder, especially when it’s unexpected and disappointing.

This week, investors had to deal with a heavy dose of truth about the state of the economy. Based on the markets’ response, it was painfully unexpected and disappointing as demonstrated by…

…S&P 500 down -8.7%
…NASDAQ down -9.4%
…Russell 2000 (IWM) -10.8%.

Why?

Over the past few weeks, Jerome Powell and Janet Yellen have gradually admitted that they got the inflation story wrong and backtracked on their “transitory” narrative.

They’ve not only flipped their transitory inflation narrative but also taken an aggressively hawkish point of view focused on bringing down runaway price hikes even if it risks the “R” word.

In our opinion, they’ve been forced to change their position because 90% of Americans say inflation is their number one concern.

Even a rational ‘data dependent’ Fed governor can only second-guess trending inflation data for so long.

So a somewhat unexpected and arguably disappointing moment of truth occurred on Wednesday at 2:15 EST when the Fed raised the key lending rate by not .50%, but an impressive 0.75%!

This is impressive because it is the largest one-time increase since 1994.

Plus, they broadcasted that they were likely to continue to pump the economic brakes at upcoming meetings throughout the Summer and into the Fall. All the while acknowledging their actions will run the risk of causing a recession.

Was It Enough?

0.75% is historic, however…

There were a handful of economists and asset managers that were pushing the Fed to get even tougher and raise the lending rate by 1% – 2%! They feel a bigger move was needed to let the world and the markets know they would do anything to fight insidious inflation.

The market initially liked the Fed’s recent hawkish action, as demonstrated by its rally into the close on Wednesday.

Unfortunately, after investors had 12-24 hours to consider the reality of the situation (the hard cold truth), Thursday the markets sold off and added to the rout that occurred on Monday. Between those two days the markets shed 5% and sent the markets to new lows for 2022. The S&P 500 and the NASDAQ went back to prices we last saw in the 2020 lockdown market deep correction.

Whether from the news media, the Federal Reserve or The Treasury Secretary, the truth about the state of the economy has changed. There is a new reality and narrative. These truths will likely permeate the economy going forward throughout 2022 and well into 2023:

Click Here To read about these 8 new truths and the 9 things you can do to protect your investments and possibly prosper during these difficult economic times

Through the Roof

Having grown up in the ‘60s and attended college in the late ’70s, I vividly remember my father telling me, “Cost of everything is going through the roof”. It was an often-used sentence by people living in the ’70s. That was the last time inflation was this out of control.

Take a look at a sampling of extraordinary year-over-year price increases that consumers are now faced with daily:

Groceries +11.9% (Largest since 1979)
Chicken +17.4%
Restaurants +9% (Largest ever)
Fuel oil +107% (Largest ever)
Electricity +12% (Largest ever)
Rent +5.2% (Largest since 2006)
Airfare +37.8% (Largest since 1987)

Important Market Insight From Friday’s Bear Market Trend Continuation Day

As you probably know, in rational times, the biggest stock and bond investors tend to make their investment decisions based on their view of the earnings outlook 6-12 months in the future rather than what’s happening today. On Friday, many of them changed their view of the future.

To that end, for the better part of a year, in this Market Outlook, we’ve been saying that “something is not quite right.”.

As you just read in the inflation statistics above, it’s easy to see now that there’s a problem with inflation. The next likely hot topic will be GDP growth (or lack thereof). We’ll come back to growth later (below) because Friday’ and Monday’s market pounding was related to inflation more than GDP growth.

On Friday, the government released May’s inflation data (CPI), and it proved that inflation didn’t peak at the 8.3% level.

The “inflation has peaked” believers were expecting a better monthly and year-over-year number. The report, however, was a hotter 8.6% YOY number. Even worse, the monthly number was 1.0% versus the estimated 0.60%.

If you do the math, that is an annualized number of approximately 12%.

Friday and Monday’s big move lower in the market reflects an unwinding of the widespread belief that inflation had peaked.

Food and energy are major contributors to the Inflation thesis.  Specifically see the price of gasoline futures below:

You will notice that the price of gasoline (futures) has gone from $2.20 at the beginning of 2022 to approximately $4.17, almost a 100% increase, and that’s not even a whole year’s change.

Please note that the price of futures is what the core price of gasoline is before it is processed with various leaded components, before distribution costs, before Federal and State taxes are imposed and before dealer profit is priced in. (gasoline stations).

Given the actual shortage that the US is now experiencing from demand, global supply issues, and the boycotting of Russian oil, the price may continue rising even though the National average is now at $5.00 a gallon or more.

Click here to continue reading the complete Market Outlook article and learn:

• Recent moves that have occurred in the interest rate markets
• The bigger problem with revolving credit and its impact on consumer behavior
• What might be the next steps for the markets
• What our Big View market analysis suggest about the next market moves (in bullets and video)
• Where to invest now
• Steps you can take to protect your portfolio and get good guidance going forward

Get it all here

By Keith Schneider and Donn Goodman

Economic Storms Ahead?

Since early fall 2021, MarketGauge has been urging you to focus on the fact that many of the economic and market indicators we evaluate were just not adding up.

As a subscriber, you may recall the numerous weekly Market Outlook issues that conveyed a puzzling sentiment that contrasted the fact that the market was going up while several concerning underlying technical conditions were questionable (at best) and more likely bearish (at face value).

At the same time, our own Mish was repeatedly writing and speaking publicly about how to adjust your investment position to prepare for what was coming.

Her message was simple.  Inflation would soon exceed expectations (which veteran investors know is not good for growth equity valuations), and to make matters worse…

Higher than expected inflation would lead to “stagflation” (it’s a 70’s thing) which would be the “surprise” problem that would finally weigh on the bull market in a way that could not be denied.

She was early, but not wrong.

And if you had been following her model portfolio throughout this period, you’d probably be saying that it was hard to deviate from what the consensus thinking was, but it was easy to see her trades were working.

Mish’s trades (which proved to be a solution) were focused on commodity related trends: energy, agricultural and precious metals.

That was the right call, and that’s why her model portfolio has been up every year despite the fundamental side of the market is still bearish.

Some of Wall Street’s best and brightest began ratcheting down their US GDP projections and company earnings forecasts.

Two of the best, Mike Wilson, Chairman, Global Investment Committee of Morgan Stanley and Mike Hartnett, Bank of America’s Chief Investment Strategist, have been warning of “inflation shock” and tough times ahead. They both came out Friday morning (June 3) and warned investors NOT to chase the market. In their words, this was nothing more than a “bear market bounce.” The S&P 500 proceeded to drop over 1.5%, and the Nasdaq tech-heavy index fell by 2.5%.

But it was the deeply troubling rhetoric of Elon Musk, founder and CEO of Tesla, and Jamie Dimon, Chairman of JP Morgan, that echoed the negative sentiment from all types of business owners and economists this past week. Even the Treasury Secretary, Janet Yellen, came out to admit that she got the Inflation scenario wrong.

90% of Americans have an even bigger concern.

In recent polls, 90%+ of Americans said their biggest concern for the near future was the price of goods and energy. One of the most prevalent subjects covered by TV newscasters is the price increases of EVERYTHING. Sad stories about people having to decide on whether to fill up their cars (to get them to work), or be able to buy food to eat are multiplying.

Click here to continue reading the complete Market Outlook article and learn:

• The latest insights on inflation drivers
• How we (and you) can profit from and inflation driven market
• Whether or not the markets move up represents a real bottom or a temporary bear market rally
• What our Big View market analysis suggest about the next market moves (in bullets and video)
• 10 ways to protect your portfolio now

Get it all here

Dead Cat Bounce or Bottom?

What History Tells Us About the Near Future

After 7 consecutive negative weeks for the S&P 500 (8 for the Dow), we witnessed a healthy reprieve this week.

The stage for this week’s rally was set by the prior week’s wild Friday (May 20th), during which the S&P 500 was down over 2% intraday and within a whisker of hitting the commonly accepted bear market designation of a 20% correction from all-time highs. However, as the media highlighted the bear market level, the market reversed and rallied to end the day in the green.

Monday’s follow-up rally created a 2-day pattern that market technicians (chart readers) could label as a reversal. Tuesday’s negative price action tested this idea, and then the healthy rallies that followed on Wednesday, Thursday, and Friday proved the pattern correct. The S&P 500 closed the week up 6.5% and over 9% higher than the prior week’s “bear market” low. It was the biggest weekly gain since Nov. 6, 2020 (+7.3%) and two other weeks that market the 2020 pandemic low.

More importantly, we finally had a positive week and broke the longest losing streaks since 2001 and 1932 in the S&P 500 and the Dow respectively.

While consecutive 7-week losing streaks are rare in the S&P 500, they are not without precedent. They often are indicative of weakening economic indicators. Many times, they precede downward earnings revisions. However, while rare, they are often followed by a future winning track record.

Many talking heads believe this week’s positive rally was due to the reporting of slightly lower indications of inflation. The April PCE (Personal Consumption Expenditure), a Fed favored stat, came in at 0.2% providing evidence that inflation may be peaking. Inflation may be slowing directly as a result of too high commodity prices, mortgage rates spiking, and general demand destruction.

This week, the beaten-up sectors experienced huge rebounds. Specifically, consumer discretionary, technology, and real estate were the leaders. As we noted in last week’s Market Outlook, this market moves fast and furious. More on that in the Big View section below.

Have we seen the bottom or is this just a bounce?

That will remain the big question. However, if you manage your investments tactically and actively rather than strictly buying and holding, there are opportunities in either outcome.

We have identified a number of indicators that you can use to gauge whether it is a good time to reenter the market.  We’ve also included statistics that tell us about investing in a similar market environment.  Please click here to read the article in its entirety. 

When I was young my family in the summer used to attend the local speedway. Amateur and Pro car drivers would run around the track at fast speeds. We would also be treated to the occasional demolition derby. Beat up cars would try and destroy the other cars until they were all inoperable but one, and that was the winner! Great fun.

Last week the markets continued lower in what has felt like a demolition derby of stocks with seven consecutive weeks of losses. Friday offered a glimmer of hope for the bulls in the last hour of trading when the indexes experienced a sharp rally as the shorts closed out positions before the weekend. By the closing bell, the Dow and S&P 500 had closed up on the day, and the Nasdaq recovered most of its almost 3% loss. Fast and furious.

The week was all about concerns of an oncoming recession. Other countries, including China, are reporting similar economic conditions. This has caused many investors to liquidate their holdings in the market and seek cash to preserve capital.

Bull or Bear Market?

As we pointed out in our prior Market Outlook, the economic conditions are all negative, for the most part.

Inflation is high and trending higher. Ongoing relentless price hikes (gasoline, food, staples, etc.) are causing demand destruction. This means consumers are starting to watch spending for luxury goods and services. Retailers and consumer staples companies had a very rough week (see Big View notes below)

Since early in the year, we have been warning of this possibility based on our Big View and various technical signals. Our Market Outlook posts this year have been advising readers to either subscribe to our investment models, Mish’s discretionary service, or consider cash as a position to preserve capital.

If you are a subscriber, then luckily you have benefited from our strategies rotating into commodity, energy, and market inverse instruments. This is how most of these strategies have delivered positive returns on the year.

The problem with labeling the current correction as an outright bear market is that overall earnings this quarter have been quite good. According to FactSet, 95% of companies have reported earnings, 77% have beaten expectations, and 73% have beaten revenue estimates. Until companies across the board report significant misses of their estimates (and a contraction of earnings), this may still be a bull market experiencing a stagflation mode with little upside. Defense is still warranted.

It is hard to label markets. Bear markets can be deceptive in many ways. A good example is March 2008 when the S&P was down approximately 20% and experienced a couple of sudden and dramatic up days that looked like a bottom to many investors. However, it took another 12 months before the actual bottom in March of 2009 (down 47%).

We still believe that we will see, sometime soon, a powerful and sudden rally to the upside. It is inevitable and necessary to work off what has become oversold conditions. Many investors may think it is the beginning of a new bull phase. Do not count on it. Please be careful. (See our suggested course of action below)

The Long View

It is important for investors to recognize that several things occurred leading up to the market’s peak in late 2021 that are now weighing on the market.

Click here to continue reading about what’s weighing on the markets, 8 ways to smooth your investment ride, and more.

Weekly Market Outlook
By Keith Schneider and Donn Goodman

Marketgauge Outlook for May 8th, 2022

Suggestions to Help Protect Your Portfolio

This is an abbreviated version of our free Market Outlook published weekly on Sunday. Recently, we’ve urged investors to get defensive, and offered 9 suggestions to protect your portfolio.

The market last week was like a good gangster movie.

It contained high drama (anticipation of Fed raising rates), a love affair with the results (Wednesday’s rally), a quick turn in sentiment with the villain getting shot (Thursday’s plunge), gangsters needing new people and recruiting (Friday’s employment reports), and another shooting (Friday’s decline).

At the end of the week, stocks sat at new lows, with interest rates at new highs.

The outlook is a mixed bag. Here’s why:

The Negatives:

1. The Fed took action. After broadcasting that it would aggressively raise rates, it did so last week, and stocks shot up almost 1,000 points.

2. Draining excess liquidity. The Fed’s aggressive path will drain excess liquidity in their $9 trillion portfolio of bonds.

Additionally, the fastest pace of interest rate increases since 1994, supply chain problems, rising crude and commodity prices, and geopolitical risks, all make investor nervousness.

Investors now fear not only inflation, but stagflation.

3. Aging population and fear. Scared by fallings stock and bond prices, many retirees are moving to cash. Bank of America reported last week that $3.4 billion came out of stocks and $9 billion from bonds.

The Positives:

1. The Fed has begun the tightening cycle. Investors expect this to fight inflation and slow the economy down.

2. Earnings are very good. According to FactSet, 87% of S&P 500 companies have reported. 79% beat earnings estimates, and 74% exceeded revenue expectations.

3. Inflation may slowly subside. The global supply chain, exacerbated by China’s Covid policies, may resume soon.

4. Consumer demand may slow. This is the principal reason for higher inflation.

5. A healthy job market. Unemployment is at 50-year lows and high job openings (11.5 million) should help offset some of the economic slowdown.

6. Stock valuations are more attractive. Corrections of 10% or greater typically occur once in every 4 years. If we don’t see an additional 5-10% drop suggesting a bear market, it may not take much for the market to find a bottom.

7. Investor sentiment is very negative. Many firms are showing extremely negative/bearish sentiment measures at levels that tend to be where market bottoms form.

8. Commodity prices may retreat. If the economy cools off commodity prices should fall.

9. Geopolitical risk. If the Russia-Ukraine war gets sorted out soon, it should improve global supply chain issues.

Unfortunately, May to October is historically bearish, and mid-term election years tend to be volatile.

 

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9 steps you can take to protect your investment portfolio:

1. Make sure you include CASH as one of your asset classes. Riding a downward market may put you in a deep underwater position that could take years to get back to event.

2. Diversify. Several of our investment strategies are positive on the year.

Click here to continue with the full-length article and more.