Investors: Wake Up and Smell the Pain (Part 2)

Investors: Wake Up and Smell the Pain (Part 2)

It was hilarious to see traders again get it wrong. They misread the Fed announcement at 2pm ET leading to a big 1% rally for the S&P 500 (SPY). After just minutes of Chairman Powell’s speech, everyone realized that things had not improved…only worse. The odds of future recessions and worse stock market performance have increased dramatically. This article explains why. It also highlights a strategy and top picks for profiting as the market falls from here. – StockNews

After the famed Chairman Powell speech from Jackson Hole in August investors got the memo that the recent rally was unfounded and time to start selling stocks once again. This prompted me to write this article, Investors: Wake Up and Smell the Pain.

Wednesday’s Fed announcement and press conference feels very much the same. Investors getting ahead of themselves by staging a 9% rally in October, before Chairman Powell lowered it once more.

They say “fool me once, shame on you…fool me twice, shame on me”.

If true, then let’s highlight the key elements from the recent Fed announcement so you understand why we are likely headed towards a recession. And why stock prices will fall before the bear market ends.

Market Commentary

There are so many threads to pull on from the Fed statements on Wednesday. However, at the end of the day the key point came out 45 minutes into Chairman Powell’s press conference when he had to admit that the window to create a soft landing had narrowed. It is possible to create an economic soft landing. But HIGHLY Unlikely.

Let’s remember that Fed has a slightly optimistic bias as they don’t want to unnecessarily scare people. A soft landing is what they prefer. This is to bring down inflation as quickly as possible, before resuming prosperity and growth.

You could see that Powell was honest in his answer. However, he had to admit that the window for a soft landing had closed. This is because they have increased rates so much without having any real effect on taming the inflation. They will need to increase rates to reduce the demand that will most likely lead recession.

The S&P 500 (SPY) was up about 1% when his speech began. Investors could see that there was a slight improvement in the clarity of their statements, but not a change in policy. Stocks began to fall from that point. After Powell said that the window for a soft landing had narrowed, it became a downright bloodbath for stocks and ended in a session of -2.5%.

The above is my morning after thoughts. I couldn’t get back to sleep until I had typed it out. Investors need to understand the meaning above. There is much more to be shared.

Let’s go back to 2 PM ET when the announcement was made.

I was paying close attention to CNBC and couldn’t help but notice the stock market movements with each new comment. It was amazing to see how every positive comment was immediately followed by a rise in stock prices just seconds later. Every negative comment was accompanied by a drop in stock prices.

Most commentators thought it was amazing that this pivot was being held to discuss the idea slowing the pace at which rate hikes are increased and then pausing to observe the “lag effects”. I was screaming at the TV “you guys don’t get it!! !” My wife joked with me that I was having a mental breakdown.

Gladly CNBC’s economic commentator Steve Liesman agreed with me that there has been an improvement in policy steps…but no real change in long-term Hawkishness at the Fed. This was made even more evident by Powell’s prepared speech, which echoed many points from Jackson Hole a few months ago. That being…

  • This is a LONG TERM battle to create price stability (closer to 2% target inflation)
  • Will not ease off too soon as it may reignite inflation before the job is done. “It’s premature to talk about pausing.”
  • The economy will slow and labor markets will weaken. This is because the Fed plans to reduce demand in order to increase supply. This is how they plan to lower inflation.

All in all, it seems the Fed is still on a path to a restrictive 5% rates with smaller rate hikes in the future. Followed by a pause to see the “lagged effects” of policy. Some people give this idea of a “pause” far too much importance.

Remember that Fed policy has a delayed effect of 1-2 quarters on the economy. This is simply the Fed being rational about reviewing conditions before making their next move, as they fear going too far, which would be even worse for the economy.

As stated at the top, the most beneficial Fed statement came a full 45 minutes in when many folks may have checked out. He was asked if there is a narrower window for a soft landing. Unfortunately, he had to admit that this was the case and that chances of a soft landing are very slim.

The Fed does not see any improvement in inflation as of right now. This is especially true for wage inflation, which is a result of labor markets. This will continue to raise rates. The economy is yet to see the full impact of these policies.

Until investors realize how dire the economy is, there is no way to bet on the next bull market. That is a first half of 2023 event and thus far too early to get bullish.

Again, the Fed is unlikely to make a soft landing due to being late to the party to raise rates. This was the final nail in the coffin for stocks on Wednesday.

A hard landing is a recession that results in a proportional drop in stock prices. The bearish thesis remains unchanged. It is only a matter time before the rest of market sees the message and responds with a correlated drop in stock prices.

Not just a retesting of recent lows. I refer to the entire amount of pain that is associated with a bearish market.

Remember 34% decline is the average drop for a bear market. That equates to 3,180. However, the valuations for stocks started near record highs…yes even worse than the tech bubble of 1999. Thus, may have to fall a bit further than 3,180 to find bottom.

In the end the investment story is as simple as “Don’t Fight the Fed”.

They are telling you with a straight face that the odds of recession are very high.


And trade accordingly with full expectation of lower lows on the way for stocks prices.

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 been working wonders since it went into place mid August generating a robust gain for investors as the S&P 500 (SPY) tanked.

Now is a great time to load up again, as we will make lower lows over 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.

Click Here to Learn More>

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 trading at $370. 94 per share on Thursday afternoon, down $3. 93 (-1.05%). Year-to-date, SPY has declined -21. 00%, 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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