9 Trades to Tame the Bear Market
Economists are warning of the recessionary storm clouds, which could have a negative impact on stock prices. The stock market (SPY), despite its direction, offers the possibility to make profits if you use the right strategies. This article will provide more information on the market outlook and a trading strategy that includes 9 picks to get on the right side. Continue reading for …. more.
Let me jump to the crucial conclusion of this week’s commentary.
Not just do I believe that we have a steeper bear market ahead of us, but I have also hand picked 9 trades to give you the best chance of making money as the market plummets to new lows. More on that later. First, it’s important that you appreciate the gathering storm clouds for recession in the next 12 months and why stocks will soon tumble much lower…
Earlier this week I put forward my most consequential commentary to help explain why a recession and steeper bear market are on the way. I actually shed light on why the Fed wants and even needs this to happen.
Yes, it sounds a bit conspiratorial. It sounds very conspiratorial on the surface. However, you will see the truth of the matter as you read it.
I will share the link below in case you have not read it yet as it forms a good back drop for what we discuss next:
One of the key points in there is about the Feds array of tools to help reign in demand to bring down inflation. “Talking down the market” is a powerful yet under-utilized tool.
Here is the key section from the article on that topic:
“So “talking down the market” is about creating a pessimistic atmosphere that leads to lower demand. This can be best understood by understanding that those who own the largest stocks are also the richest people in the country, who tend to spend more as consumers.
With that in mind, consider this chain reaction: ]]
More Bearish on Stock Market> More Pessimistic Economic Outlook> Less Spending (consumer and business), Lower Demand> Lower Inflation
With that in mind now consider this chain reaction:
More Bearish on Stock Market> More Pessimistic Economic Outlook> Less Spending (consumer and business)> Lower Demand> Lower Inflation
Once again it seems that I am going the conspiratorial route with this conversation. Consider the STERN comments that Fed officials have made every time stock prices have risen in recent months. This is the very essence of talking down the markets.”
With that backdrop in place consider the speech made by Fed Governor Bullard Thursday morning that got stocks heading lower in a hurry. Here is a link to a more complete article on what he discussed. And here is what I believe to be the key eye-opening comment:
“However, Bullard’s presentation argued that 5% could serve as the low range for the where the funds rate needs to be, and that upper bound could be closer to 7%. That is well out of sync with current market pricing, which also sees the fed funds rate topping out around 5% by mid-2023.”
Let me reframe this vital conversation. Many traders believed that the CPI report this month showed signs of inflation peaking, and that it was a good reason to start the next bull. They believed that the previously understood Fed Funds rate of 5% was not going to be reached because it was not necessary.
Not just is Bullard stating that 5% is still possible. It is actually at the low end, which is what is required to curb inflation with 7% a possibility. This level of hawkishness goes hand in hand to a recession.
Let me assure you that the leaders of the early November rally up to 4,000 did not appreciate this vital fact. Heck, even the bears pushing stocks down to 3,491 in early October did not appreciate this possibility which now doubt will have detrimental effects on the economy and stock market by extension.
The bear market thesis and recession are still in full swing, with lower lows expected this year. That is why a recent Wall Street Journal survey showed that market experts now have a 65% expectation of a recession coming within the next 12 months.
Note that the average recession and bear market came with only a 40% expectation of that negative outcome. This shows investors a marked increase in the likelihood of a negative outcome.
For these reasons, and many more, I still believe that the 2,800 to 3,200 is the basic range of this bear market’s bottom for the S&P 500 (SPY). And if you stuck a gun to my head to pick the precise level I would say a little under 3,000 would probably be the proper cause for panic and capitulation that should mark the true and lasting bottom. However, we are way ahead of ourselves. This is what it will look like in 3-6 months.
Simply put, you should expect more stock markets downside in the coming weeks and months. It is important to plan your portfolio to thrive in this market environment.
What To Do Next?
Discover my special portfolio with 9 simple trades to help you generate gains as the market descends further into bear market territory. This plan has proven to be a great asset for investors, generating a substantial gain during the market downturn.
Now is a great time to load back, as we deal yet another bear market rally that will see stocks fall further in the coming weeks and months.
If you have been successful navigating the investment waters in 2022, then please feel free to ignore.
However, if the bearish argument shared above does make you curious as to what happens next…then do consider getting my updated “Bear Market Game Plan” that includes specifics on the 9 unique positions in my timely and profitable portfolio.
Wishing you a world of investment success!
Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
CEO, Stock News Network and Editor, Reitmeister Total Return
SPY shares were unchanged in after-hours trading Friday. Year-to-date, SPY has declined -15. 65%, 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.