The S&P 500 (SPY) appears to be breaking through the bull market territory above 4200. However, history shows many examples of how this could be nothing more than the Suckers Rally. That’s why you should tune in to the latest market commentary from Steve Reitmeister including a clear trading plan and the best picks for this unique market environment. Get the full story below.
Stocks rallied last week on news that a debt ceiling showdown was likely to be avoided. So I say Kabir, my heart…
DUH!
That’s because politicians don’t stick their fingers in that light socket for long. It always magically resolves in time.
When the smoke cleared from that rally, investors realized they had no resolve to storm the bullish territory above 4,200 for the S&P 500 (SPY). This likely means more forgetfulness and range trading in the future as investors wait for a real catalyst to resolve the bulls/bears debate once and for all.
Let’s review why this is happening…and what potential catalysts are on the calendar that could produce the stock market’s next big move.
Market comment
The short version of my current market outlook is nicely summarized as follows from my previous comment:
“There has been a tug of war throughout the year between the bulls and the bears. It looks like the bulls grabbed the early lead given how stocks climbed near 4200 by early February…but since then stocks have been trading in a narrow range as the bulls and bears seem to be balancing to Somewhat.
Bears will say that storm clouds are still forming for a deeper recession and bear market thanks to the hawkish Federal Reserve seeking to create a recession to put an end to high inflation.
The bulls will say that the long-awaited recession did not happen. And you probably never will. Thus, the bottoms are already in and a new long-term bull market has already begun.
Right now, these two opposing views are evenly matched creating a narrow trading range and very low volatility. This sleepy procedure will end when the bulls or bears can wave the victory banner. Until then… the work related to sleep will continue.”
(Read the full version of the comment above here: The Worst Stock Market Ever – Part Two)
Even though stocks rose this week to 4200. Really nothing has changed to convincingly win the bull/bear battle. In fact, most recent objective news has been negative.
Like retail sales only came in +1.6% yoy. When you remove +4.9% for inflation (CPI), it shows a -3.3% decline in US retail.
This fits with the general hyperinflation narrative that consumers are afraid to wait to buy products that lead to an apparent boom in GDP in the near term. This is followed by an economic slope as demand is pulled forward. In fact, this may be a precursor to the recession happening right now.
Those looking to the Fed for signs of a pivot to rate cuts should be disappointed by what they heard this week.
First was Dallas Fed President Logan who said the current data does not warrant a pause in rate hikes just yet. The next morning, Chairman Powell gave a speech reaffirming that inflation remains very high and that the Fed will remain “steadfast” in its goal of lower rates.
This means that the bulls will have to be disappointed again on hearing the hawkish determination that the Fed is likely to repeat in the next announcement on June 14th.y. But even that isn’t enough to win the day for the Bears either.
Investors will need to see definitive evidence of a recession on the way for a bear market to re-emerge. This would cause stocks to break below the 200-day moving average at 3976 and likely a retest of the October lows at 3491…if not lower. (This break below 3976 should be a catalyst for more downside).
this brought us backWatch CatalystFor any events that end with this bull/bear showdown stands in compelling fashion. Here’s the roll call for key events on the calendar that can act as that trigger:
5/25 subsidy claims– This will not be strong enough on its own as investors will look for cooperation from the 6/2 Government Employment Situation Report. However, if jobless claims start to approach 300,000 per week, this historically indicates a time when the unemployment rate has been about to be high for a prolonged period.
5/31 ADP recruiters, JOLTsTwo other jobs reports that often serve as leading indicators of what’s in store for the monthly state of government employment.
6/1 ISM Manufacturing, Unemployment Claims- There were several weak readings of the ISM Manufacturing Index without really indicating a recession. However, this remains one of the main monthly reports for monitoring the health of the economy.
6/2 Government Employment Status- Job additions are expected to continue declining to 180,000 this month. Note that population growth requires an additional 150,000 jobs per month to maintain the level of the unemployment rate. So, any movement below this level can make investors expect worse readings in the future. Also, many eyes will be on the wage inflation component because this flat inflation has been clearly irritating to the Fed.
6/5 ISM Services – was in positive territory at 53.4 last month. But if it leads to a break below 50 in deflationary territory, it would certainly increase the odds of a future recession.
6/14 Fed Meeting – More investors expect they will stop raising interest rates. But that’s very different from the pivot to lower rates which they still claim happened in 2024. So, Powell’s post rate hike press conference will be closely watched for clues as to what comes next.
Overall, I still think we have to take the Federal Reserve at its word that a recession will happen before inflation can be properly tamed. And once the Pandoras box opens…then things can get ugly in a hurry with stock prices dropping a lot on the way. This is why I am not tempted to join the bulls even as they knock on the door with a potential break above 4200.
Rity, are you saying it’s not possible to break out above 4200 now?
I am not saying that because with the stock market anything is possible.
However, looking back in history, there have been many false starts of a new bull market that subsequently failed…And he fails miserably.
Notable is the larger rally of 20% from November 2008 through early January 2009 which technically marked a fresh bull market. This has caught a lot of investors excited only for the bear market to come back with a vengeance with lower lows on the way (focus on the stocks in the chart below).
So just a break above 4200 for a while without a clear fundamental catalyst wouldn’t tempt me to chase the stocks because of the high probability of beingsuckers pool“.
Yes, the appearance of the next bull market will make sense at some point. For now, it simply doesn’t mean the high odds of a recession to come that leads to lower corporate earnings and lower stock prices (the market has always worked that way…always doubt it).
So please continue to stay balanced in your portfolio which means buying 50% long stocks. Then when the CLEAR BEAR OR BULL STIMULAR appears, make the rest of your moves to get on that bandwagon.
What’s next?
Discover my balanced portfolio approach to turbulent times. The same approach that has beaten the S&P 500 by a wide margin in recent months.
This strategy is built on the basis of more than 40 years of investment experience to appreciate the unique nature of the current market environment.
At the moment, it is neither bullish nor bearish. Rather, it is muddled and uncertain.
However, given the facts at hand, we are more likely to see the bear market emerge from hibernation, sending stocks lower again.
Fortunately, we can enact strategies to not only survive this downturn…but even thrive. That’s because with 40 years of investing experience, this isn’t my first time at a bear market rodeo.
If you are interested in learning more, and would like to see the hand-selected trades in my portfolio, please click the link below to start the right side of the action:
Steve Reitmeister’s Trading Plan and Best Picks>
I wish you a world of investment success!
Steve Rittmeester…but everyone calls me ritti (pronounced “wright”)
CEO, StockNews.com and Editor, Reitmeister Total Return
SPY shares were down $0.64 (-0.15%) in after-hours trading Friday. Year-to-date, SPY has gained 9.88% against the % gain in the S&P 500 benchmark over the same period.
About the Author: Steve Rittmeester
Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the company, but he also shares 40 years of investment experience with the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his recent articles and stock picks.
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