The bull/bear debate could lastly get resolved in June by specializing in 4 key occasions on the financial calendar in June. Steve Reitmeister shares his views on what occurs subsequent and why the S&P 500 (SPY retreating to October lows, or decrease, is the more than likely consequence. Get full particulars within the commentary that follows.
I emphatically denounced final week’s rally with seeming break above the important thing 4,200 resistance degree for the S&P 500 (SPY).
The quick model is to emphasize that this rally is completely hole and solely being led by a handful of mega caps. No breadth…and thus no credibility.
The complete model of the story might be discovered right here: The Fallacy of the Bullish Argument.
This market is at a important juncture. Bulls are desperately looking for a transparent inexperienced mild to race forward whereas bears remind everybody of the purple flags that would ship shares zooming decrease.
Let’s evaluate the potential 4 potential catalysts in June and the doubtless consequence for shares.
Market Commentary
The financial calendar is chock filled with potential catalyst going into mid June. At this stage bulls want the bears to desert hope and be part of their trigger. That may solely occur if there may be plain proof {that a} recession will not be forming and the financial system is just getting stronger.
On the opposite aspect of the ledger, the bears have to cease speaking concerning the “potential of recession” and present it coming true in actuality. That may awaken bearish spirits from their a number of month hibernation resulting in shares getting mauled briefly order.
Listed below are the 4 key dates that would function the catalyst for the following huge inventory transfer:
Thursday June 1st = ISM Manufacturing: There have been MANY weak readings for ISM Manufacturing with out really signaling a recession was at hand. Nevertheless, that is nonetheless one of many key month-to-month stories to watch on the well being of the financial system.
Most unlikely to persuade buyers all by itself. However this report might set a tone the place buyers search affirmation from the opposite month-to-month stories that would tip the scales strongly in a single path or one other. Notice that most of the regional manufacturing stories of the previous month have been weak and thus foreshadows comparable poor readings for this nationwide report.
Friday June 2nd = Authorities Employment Scenario: Job provides are anticipated to maintain ebbing decrease right down to 180,000 this month. Notice that inhabitants development calls for 150,000 job provides per thirty days simply to keep up the present unemployment degree. So, any motion below that mark might have buyers predicting a spike within the unemployment fee.
Additionally, many eyes will probably be on the Wage part as that sticky inflation has been clearly bothersome to the Fed. That’s presently anticipated to return in at +4.4% yr over yr. (It would not take a math wizard to understand how a lot increased that’s than the two% Fed inflation goal and what I’m about to say within the subsequent part).
Monday June 5th = ISM Providers: This report was in constructive territory at 53.4 final month. But when that cracks below 50 into contraction territory it undoubtedly would improve the percentages of a recession forward. Not serving to issues was the latest Retail Gross sales report which confirmed a -3.3% yr over yr decline after eradicating the unreal good thing about inflation.
Wednesday June 14th = Fed Assembly: Most buyers expect that they are going to pause elevating charges. And that’s fairly doubtless. Nevertheless, that’s fairly completely different than pivoting to decrease charges which they nonetheless declare is a 2024 occasion. So, the Powell press convention that follows the speed hike resolution will probably be carefully watched for timing clues for any future pivot.
Please do not forget that the Fed coordinates a variety of messaging within the speeches of Fed officers as a part of their mission to have clear communication with buyers. And the CLEAR message this previous month has been “extra work to do” to convey down inflation.
As in increased charges for longer and never discount in charges this yr. As in the identical factor they’ve mentioned all yr lengthy…and little question will say once more on June 14th…little question disappointing bulls who proceed to NOT get the message straight.
How Do I Suppose Its All Going to Flip Out?
This commentary from a couple of weeks again solutions the above key query: Why Steve Reitmeister is Changing into Extra Bearish
Merely acknowledged, if the Fed is betting on a recession sooner or later due to their efforts to tamp down the flames of inflation…then you must guess on that too!
With that in thoughts, now let me share with you essentially the most factor I learn this weekend. That being feedback from famed Swiss cash supervisor Felix Zulauf on an efficient early recession warning and what that tells him about our present recession watch:
“We solely know by hindsight when the recession began, however there may be an indicator you may watch that provides you some indication when the beginning of the recession is right here, with out realizing for positive. And that’s when the inverted yield curve begins to flatten.
“And truly, in the previous couple of days or two weeks or so, we noticed some flattening of that yield curve, and this might be a sign that we’re very near the start of a recession. I do imagine that such a recession will probably be quick, not lengthy. It might be deep as a result of I feel the Fed and different central banks are overtightening. They drive ahead by trying into the rearview mirror as a result of inflation is a lagging indicator, and financial coverage is a number one indicator.
“So, I feel they overtighten, and it might be a pointy or deeper recession, however a lot shorter as a result of as soon as it is right here and as soon as it is acknowledged, the Fed and different central banks will are available in and switch round and go from tightening to easing comparatively rapidly.
“I feel that within the third quarter, we are going to see that the Fed will hand over its QT coverage, the quantitative tightening, and if the market declines the way in which I anticipate, and it might result in decrease lows, I nonetheless have a goal that I informed my subscribers in late “21, about 30% down, which is the low 3,000 within the S&P and perhaps 9,000 within the Nasdaq or one thing like that. Meaning decrease lows under the October lows, someday within the second half in the direction of later this yr.”
And here’s a correlated chart displaying the two yr vs. 10 yr fee inversion over time and its relation to recessions (grey bars):
Certainly, you may see that the recessionary intervals didn’t occur on the deepest moments for the yield curve inversion. As an alternative, it passed off after it flattens out and sometimes begins to enhance.
Now take that into consideration as you have a look at the far proper of the chart the place the latest inversion has began to flatten out. And correlate that with the ten% anticipated drop in company earnings in Q2. And now correlate that to Fed expectations of a recession forming by finish of the yr earlier than they begin decreasing charges.
Bulls have loved a righteous rally since October as a recession didn’t emerge. This made it acceptable for shares to bounce again to present ranges.
Nevertheless, to proceed increased from right here they should ensure that fears of recession are lifeless and buried. And as shared above, there may be nonetheless good motive for warning.
Thus, I can’t be becoming a member of the bullish rally right now. As an alternative, I’m going to proceed my vigilant look ahead to the following huge catalyst that may conclude the bull/bear debate as soon as and for all. But in case you requested me now to foretell what’s going to occur down the highway…I’d most definitely guess on the bearish consequence.
What To Do Subsequent?
Uncover my balanced portfolio strategy for unsure instances. The identical strategy that has overwhelmed the S&P 500 by a large margin in latest months.
This technique was constructed based mostly upon over 40 years of investing expertise to understand the distinctive nature of the present market setting.
Proper now, it’s neither bullish or bearish. Fairly it’s confused and unsure.
But, given the details in hand, we’re more than likely going to see the bear market popping out of hibernation mauling shares decrease as soon as once more.
Gladly we will enact methods to not simply survive that downturn…however even thrive. That is as a result of with 40 years of investing expertise this isn’t my first time to the bear market rodeo.
If you’re curious in studying extra, and need to see the hand chosen trades in my portfolio, then please click on the hyperlink under to begin getting on the proper aspect of the motion:
Steve Reitmeister’s Buying and selling Plan & Prime Picks >
Wishing you a world of funding success!
Steve Reitmeister…however everybody calls me Reity (pronounced “Righty”)
CEO, StockNews.com and Editor, Reitmeister Whole Return
SPY shares fell $0.27 (-0.06%) in after-hours buying and selling Tuesday. Yr-to-date, SPY has gained 10.29%, versus a % rise within the benchmark S&P 500 index throughout the identical interval.
In regards to the Creator: Steve Reitmeister
Steve is best recognized to the StockNews viewers as “Reity”. Not solely is he the CEO of the agency, however he additionally shares his 40 years of funding expertise within the Reitmeister Whole Return portfolio. Be taught extra about Reity’s background, together with hyperlinks to his most up-to-date articles and inventory picks.
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