40-year investment veteran Steve Reitmeister has been beating the bearish drums since May 2022. However, he sees growing reasons to consider that it may be time to turn bullish on equities (SPY). All 6 of those bullish reasons are shared in the new commentary below, including top picks to consider right now.
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I wasn’t the first guy to go bearish in 2022, but in May I got the memo just in time. This led to a major shift in my portfolio that allowed me to profit on the way down. And I’ve been steadfastly bearish ever since.
But like the Fed, my outlook is “data dependent”. And recent data has made me less bearish. Note that this is not the same as going bullish.
Why the change of heart? And what does that mean for trading strategy in the future?
Read on below for the full story…
Market Commentary
Let’s start with some important terminology first. Being less bearish is very different from being bullish.
Suppose I previously saw an 80% chance of a bear market and lower stock prices in 2023. So only a 20% chance of a bull market.
Given recent information, my opinion has shifted to about a 65% bearish probability vs. 35% bullish. That’s almost 2 to 1 in favor of a bear market forming… just a lot less bearish than before. The next logical question is…
Why still bearish?
You’ve had me talking non-stop since May about all the reasons to be bearish. That is overcrowded in my article archive. Plus my most recent presentation puts all of that into perspective in a nice succinct way: Stock trading plan for 2023.
Now we are going to flip this coin and talk about the bullish view. It’s hard for me to say it honestly. Instead, I’m going to flush out any individual ideas that point in a bullish direction… the sum of them is still less likely than the bearish position playing out.
Employment is too strong: That was on full display Thursday when the number of claims for unemployment benefits fell even lower to 186,000 claims. You can’t have a recession without losing your job. Therefore, the first half of 2022 was not labeled as a recession, even though we had 2 consecutive quarters of negative GDP.
So yes, we all see the headlines about job cuts at some high-profile tech companies. But overall, there are way too many job openings, and that’s why unemployment has gotten lower… not higher. The trends in unemployment claims say this isn’t going to change any time soon, as you usually need more than 300,000 claims for unemployment to rise.
To sum it up, we may very well have an economic contraction soon, but it will probably have very little impact on employment…thus increasing the likelihood of a soft landing that doesn’t require stocks to fall further.
Break above the 200-day moving average: As much as I trust the fundamentals, I’ve learned to pay close attention to the 200-day moving average for the S&P 500 (SPY). We broke above it on 1/19 and have only climbed higher since then. 6 straight line closes above and 100 points north of the mark seems to tentatively confirm the breakout.
“As January goes…so goes the rest of the year”: This is another one of those classic investment sayings that has a bit of truth to it. Not only the 6% gain for the S&P 500 in the month, but also the risk on the nature of the groups leading the way. So if the saying is true, it means more of the same in 2023.
Less bad = good: This idea stems from the idea that expectations for the economy and corporate earnings are incredibly low. Lower hurdles like these make it easier to impress investors when things are less bad than expected is all it takes to boost stock prices.
Too many bears: Have you ever noticed that investor sentiment is an opposing indicator? The more optimistic people feel = optimism too high = greater chance of a downtrend.
The same applies in reverse. When people are too bearish… too often the opposite happens. And indeed, this is the most anticipated recession and bear market I can remember. That increases the likelihood that the opposite will occur. This also fits in with the old idea that “the market is climbing a wall of worry”.
Fed Pivot at 2/1?: The Fed is a slow and deliberate bunch. And given statements in the past, and throughout the month of January, they will continue to raise rates going forward.
Any softening in their language to acknowledge that inflation is moderating and that they may not need to remain aggressive for as long as previously stated could well be the final nail in the bearish coffin with more upside potential ahead. That’s because it increases the chance of a soft landing.
Note that the absolute opposite could happen and resolutely aggressive statements would stop this rally in its tracks with significant downside to follow.
I realize after reading these 6 reasons to go bullish it sounds like a compelling argument. Therefore, I bring your attention back to the statement above where I still see a 65% chance of a continuation of the bear market with new lows later in 2023.
That’s because there are at least 6 more months of restrictive Fed policies ahead…plus the 3-6 months of delayed effect of these policies equates to much more time for a full-blown recession to take root. And therefore plenty of opportunity to finally exacerbate unemployment.
This is the Pandora’s box of economics. Once that PAIN starts to roll out, everyone becomes more afraid for their job security. This leads to more savings and less spending, which further weakens the economy, resulting in more layoffs.
If we can really avoid this vicious circle and enjoy a soft landing, yes, the bull market is starting now. The probability of that will continue to change with each new economic fact in hand.
Again, reading all this, there is still a 65% chance of a recession and a deepening bear market. However, I’m willing to adjust more bullishly if the preponderance of the evidence swings in that direction.
The next key piece of evidence comes on Wednesday, 2/1 when the Fed has their interest rate decision and announcement. That can be incredibly bullish…incredibly bearish…or incredibly uncertain.
I’ll do my very best to decipher it all for you in next week’s commentary. Just be sure to keep an open mind to any new facts as they come in, because the most dangerous thing about investing is listening only to evidence that proves your point and ignoring the rest.
We are investors. No bulls or bears.
Yes, there are times when we feel more bullish or bearish. But that label should never be applied to you as a point of identity, as it can become too permanent and prevent you from switching gears to improve your portfolio.
At this point, we all need to be flexible to look at the facts with as open a mind as possible.
Stay tuned for more updates and related transactions as these facts roll in.
What to do now?
Check out my brand new presentation: “Stock trading plan for 2023” covering:
- Why 2023 a “Jekyll & Hyde” year for shares
- 4 warnings indicate the bear will return in early 2023
- 9 trades to make a profit on the way down
- Plan to Bottom Fish @ Market Bottom
- 2 Trades with 100%+ upside potential as new bull emerges
- And much more!
Watch “Stock trading plan for 2023” Now >
Wishing you a world of investment success!
Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
CEO, StockNews.com and Editor, Reitmeister Total Return
SPY shares fell $0.09 (-0.02%) in after-hours trading on Friday. Year-to-date, SPY has gained 6.08% versus a percentage increase of the benchmark S&P 500 index over 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 company, but he also shares his 40 years of investing 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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