Is This the Formation of a Bear Market?

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The S&P 500 (SPY) staged an impressive rally since hitting a low of 3,810 on May 20th. The more I consider the facts, the more concerned I become that this is the formation a bear market. I am taking more defensive measures in my newsletter services, Reitmeister Total Return and this one, POWR Value. This week’s Market Commentary will provide more information on why bear market odds continue to grow. Continue reading for …. more. – StockNews

(Please enjoy this updated version of my weekly commentary published June 3rd, 2022 from the POWR Value newsletter).

In last week’s POWR Value commentary I shared more insights that equated to a higher probability of bear market on the horizon (Read it here).

Since then, the overwhelming evidence points in that direction. Meaning the “thought virus” of bear market continues to spread.

The most notable is the Atlanta Fed’s updated GDP Now reading. This indicator was used by me as evidence of economic strength a couple weeks back at 2.5% in Q2.

This has now dropped to 1.3%, after the most recent slate economic results were below expectations. This is bad news for the direction.

Yes some will point to ISM Manufacturing on Wednesday rising from 55.4 to 56.1 as a positive. Or that Government employment today showed 390K job gains which was higher than expected.

But, let’s not forget that Manufacturing is often volatile and one month can tell us very little about the next month. Or the fact that ISM Services today came in lower than expected at 54.5 from 55.9 last month.

Plus, the services sector is four times larger than manufacturing.

Despite the apparent high employment numbers, the sad truth is that it is a slow indicator. It often does not signal trouble until after a recession has begun to take root.

Kinda like a fire alarm, but it doesn’t go off until the building is completely burned to the ground.

Also of interest, the competing ADP employment report from Thursday was woefully under expectations at only 128K jobs added. This is the slowest pace since Covid’s inception.

Plus has historically been more accurate in showing job trends than the Government version.

The spread of the bearish thinking virus to other places is further evidenced by the fact that economic data is not enough. Here are some of the most disturbing negative headlines to prove that point:

Here’s the email Elon Mush sent to all Tesla employees about a 10% head count reduction

Jamie Dimon (JPMorgan Chase CEO) says “brace yourself” for an economic hurricane

You Have Been Warned

Yes. I could go on and on. If you are unsure, Google search for Job Layoffs or Bear Market to see if Google has any information that supports this negative idea.

Right now I would say that odds of recession and bear market is north of 50%. This also means that it is not a done deal.

The Fed could indeed orchestrate a soft landing of the economy as they raise rates. However, the recent severe correction was enough to cause enough pain before the Fed can return to bull market conditions.

Our move down to 69% long in POWR Value is a nod in that direction. This bear market is not inevitable. We can balance our aggressive or defensive strategies by being more conservative.

A bear market could mean that we sell more aggressive positions and shift to smaller, lower beta positions in our portfolio. Also likely reduce total long exposure to just 50%.

On one hand, if we avoid the bear market and get back to a serious and long-lasting bull run, then the opposite will happen.

That would mean getting back to 100% long in more aggressive positions. This includes a higher proportion of small caps, growth stock and higher beta investments.

Remember that economics is a soft science. It is therefore difficult to make precise predictions because it is not exact.

The same applies to the stock market, as recessions and bear markets go hand-in-hand.

I mention this to show how we use a step-by-step approach to make our portfolio more bullish.

It’s dangerous to make a mistake and be trampled on by the market moving in the opposite direction. It’s better to be more nuanced as the events unfold.

What To Do Next?

If you want to see more stocks of high value, you can check out our special report

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What makes these stocks great additions to any portfolio?

First because they are all undervalued businesses with exciting upside potential.

But even more important is that they all qualify as Strong Buys according our highly-regarded POWR Ratings system. Yes, that same system where top-rated stocks have averaged a 31. 10% annual return.

Click below to see these 7 outstanding value stocks that have the right stuff to outperform over the next few months.

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All the Best!

Steve Reitmeister
CEO & Editor of POWR Value trading service

SPY shares closed at $410. 54 on Friday, down $-6. 85 (-1.64%). Year-to-date, SPY has declined -13. 29%, 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. Find out more about Reity, including links to his most recent articles.


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