There were many reasons to be bearish in the stock market (SPY) in 2023. This is especially true given inflation, which is still too hot, prompting the Fed to step up its hawkish stance. And then came the specter of a possible banking crisis, which only increases uncertainty…and which only increases the odds of a bear market. Read on below to discover Steve Reitmeister’s updated market outlook, trading plan and top picks to stay on the right side of what’s happening in the market.
The S&P 500 (SPY) has taken a beating of late, giving up almost all of its hard-earned gains from the start of the year. That sell-off ended on Tuesday with a welcome recovery rally.
But if we’re honest…There is no real relief in sight.
Let’s review where we are now, what’s in store for the stocks, along with our trading plan to outperform.
market commentary
We need to talk about the elephant in the room first. I am of course referring to the serious concern about the recent bank closures that “ghosts of the past financial crisis“.
Now let me insert an important disclaimer.
I AM NOT A BANKING EXPERT!
And the sad fact is that 99% of the articles you’ve read in the past week weren’t written by banking experts either. So please understand that what I am sharing is from the perspective of an economist with 43 years of active investing experience.
This seems to be more smoke than fire… but there will likely be small bushfires here and there.
This means that after the financial crisis of 2008 there is much more banking supervision than in the past. Combine this with the fact that there is no real estate stock bubble like last time…nor have we created new madness debt that could implode the financial system.
Putting all of this together, it doesn’t sound like we’re on the brink of a systemic collapse of the banking system. However, there are isolated cases of balance sheet weakness and mismanagement that need to be cleaned up. This is especially true for banks with too much crypto exposure.
Will there be more bank failures?
Most likely yes. Unfortunately, there is a strong incentive for hedge funds to short stocks to find weaknesses and exploit them to their advantage.
Heck, even Cramer has openly joked about how easy it is for a hedge fund to short a stock and then start circulating rumors that destroy the stock price. Simple pickers.
This creates a lot of headline risk in the meantime as each new bank failure will lead to more uncertainty. And that uncertainty comes on top of all the earlier worries about inflation and Fed hawkishness creating a recession and a deeper bear market. So now is a good time to move on to this conversation.
Stocks were already selling out in February and early March when the street signs read: Attention ahead!
That means inflation was still too hot, prompting the Fed to ramp up its hawkish rhetoric that rates were likely to rise higher and stay longer than previously indicated. And before that, it was said that rates would hit at least 5% and be on the books by the end of 2023.
The previous performance was enough to push the economy to recessionary levels. Therefore, the likelihood of even greater hawkishness is why we have spent the last six sessions at 4k under key psychological support. And the last four sessions below the 200-day moving average at 3,940.
Now let’s think about an interesting term mentioned in this article:
Goldman Sachs no longer expects the Fed to hike rates in March
A month ago, the March 22 Fed meeting was expected to be accompanied by a 25 basis point rate hike, as we saw in February. Next came more hawkish behavior from Fed officials and the odds began to move toward a 50-point hike to more aggressively control inflation.
So what would happen if the Fed suspended rate hikes because of the banking crisis?
I actually suspect that investors would take that negatively. Because it would be a signal to investors that the Fed is SERIOUS about the stability of the banking system that they would have to deviate so significantly from their restrictive plans.
That means investors should NOT consider such a move as a dream.Deaf pivot point“. Rather, the Fed would hit the panic button that financial system stability is now more important than fighting inflation (which it has labeled Public Enemy #1 for over a year).
Because as weird as it sounds… let’s all pray that the Fed continues to hike rates aggressively at the March 22nd meeting as an urgent pause could be far worse for stocks.
Note that the Consumer Price Index report was released on Tuesday morning. Yes, it was a notch better than expected, up ONLY 6% year over year from 6.4% previously. Please keep in mind that the inflation target is still 2% and we are a long way from it.
For those who want to say that inflation really was an issue in the spring or summer of 2022 and isn’t that much of an issue today…unfortunately, that notion is bullshit. The proof is the 0.4% monthly increase, which still suggests a 5% annual growth pace. (Remember AGAIN the target level is 2%).
Wednesday 15th March brings the forward looking Producer Price Index report along with Retail Sales. And after that, all eyes will be on the Fed’s March 22 rate decision. than actually becoming deaf.
All in all, this is still a bearish environment. Even if the banking issues weren’t on the agenda, I’d still bang on about how the Fed’s actions are opening the door to a recession and a natural deepening of the bear market.
However, when you throw into the mix the uncertainty of banking troubles and the serious headline risk that lies ahead, it’s just a nail in the coffin for early 2023 bullish aspirations.
This means that the 2022 bear market has entered a mini winter break at the beginning of the new year. Now it’s awake and hungry to devour even lower stock prices.
Not lower every day, week or month. But as we look to the next few months, expect a lot more downside. And yes, I suspect that we will drop even below the 3,491 level from October.
For this reason, Reitmeister’s total return portfolio is constructed to benefit if stocks continue to fall into the bear market. Luckily, if you haven’t already, it’s not too late to use this strategy.
What do you do next?
Discover my brand new “Stock trading plan for 2023” Coverage:
- Why 2023 a “Jekyll & Hyde” year for shares
- How the bear market returns with a vengeance
- 9 Trades To Profit Now When The Bear Returns
- 2 trades with 100%+ upside if a new bull emerges
- And much more!
Stock trading plan for 2023 >
I wish you a world of investment success!
Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
CEO, StockNews.com and Publisher, Reitmeister Total Return
SPY Stocks. Year-to-date, SPY is up 2.43% versus a percentage gain for the benchmark S&P 500 index over the same period.
About the Author: Steve Reitmeister
Steve is better known to StockNews audiences as “Reity.” As well as being the company’s CEO, he brings 40 years of investment experience to the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his latest articles and stock picks.
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