Bear markets require more patience than bull markets. That’s because rallies are so powerful that it signals you to get back on the board just before it crashes to a new low. Truly a “siren’s song” for investors. Let 40-year investment veteran Steve Reitmeister explain why stocks (SPY) will go down… and why it might take longer than you think. Read the rest below.
(Please enjoy an updated version of my weekly commentary from the Reitmeister Total Return newsletter).
Stocks were higher on Tuesday and investment media (CNBC and the like) are sharing details as to why this is the case. And you should consider why you’re bullish.
Note that stocks fell on Monday and those same media outlets put out scary headlines telling you why you should be in a recession.
The investment media doesn’t care about accuracy. Nor about helping you make better investments. They just want maximum eyeballs on their information to sell ad space.
This means there is no accuracy…no consistency…no value!!!
What should be done instead?
Read below for the answer…
Of course, today’s FOMO rally seemed very tempting to participate in. It just keeps rolling higher minute by minute because usually computer driven traders are based on momentum and they accumulate on top of each other.
Unfortunately, today’s gains have very little to do with the long-term picture… which remains tenuous.
Inflation is a deadly economic disease that is still too virulent to make anyone in their right mind think that bear markets are over. On top of that you have a Fed that is gong to reduce inflation through aggressive rate hikes that will surely dampen an already weak economy (-1.6% in Q1 and Q2 GDP is now estimated at -1.5%).
This process is far from over. Because of this, economic decline is still far away. Because of this, the share price has not fallen.
This is a shortened version of a very in-depth discussion I had on this topic on July 11th.th Platinum Member Webinar (Watch Now >)
Note that I initially felt that this bear market would end sometime in 2n.d Half of the year makes it shorter than the average 13-month bear market. (measured from the previous peak at the bottom of the market).
That outcome is still possible. Unfortunately, this last month’s rally above recent lows has me thinking that this could be another long bear market like the one we endured from 2000-2003.
The big similarity is that stock valuations in both scenarios are slightly higher than the overall market. That’s especially true for the most exciting growth stocks that have reached great heights only to come crashing back down to earth.
I know some of you are thinking that valuations during the last tech bubble of the 1990s were too extreme and thus not a good comparison. However, when you look at the S&P 500 (SPY) chart below you’ll see that the market’s overall PE was fairly consistent with valuations spread across the board.
I’ve shocked everyone in the past by showing this valuation slide in webinars to show how eerily similar the early 2022 PE was to the tech bubble in 2000. A long-term average PE of 15.5 is what we need to bottom out in a bear market.
Now that we appreciate the similarity in valuation heights, we can understand how the current market path may mirror what we saw in 2000 to 2003. It’s a long winding road with many drops…then many false rallies until the end. The bottom was found 3 years later in the spring of 2003.
So as much as I’ve talked about the modern market moving faster than in the past…mostly due to the rise of computer based business…maybe it’s a long slow burn like 2000-2003.
No it is not a basic case now. Still think it will work faster than that. However, this possibility is interesting to consider as each bear market has its own unique characteristics. Opening one’s eyes to the possibilities and thus increasing one’s patience for the gains made in our inverse ETF positions will not immediately fill up like a jackpot.
Reity, is it possible that the bear market is over?
Yes it is possible. But this is highly unlikely for the reasons already mentioned.
Again, my 7/11 webinar presentation goes into detail about the nature of bear market bottoms. And how many drops/rally/drop cycles it takes until the final bottom. So, nothing really special for me about today’s bounce.
Now add to this that we have low rates thanks to TINA (no substitute for the stock investment environment of the past few years…). And like the last time we faced excessive valuation levels from 2000 to 2003, it may take a long time to let all the air out of the bubble.
This knowledge gives me the patience I need not to be drawn into these sucking rallies at first blush. But, yes, there is a limit to that patience because the process of truly bear market bottoming is different every time and there is always the possibility of another bull market emerging.
In my book I don’t seriously consider the bottom found until I test the 100 day moving average for the S&P 500 (SPY) which currently sits at 4,148. What’s interesting about this position is that it coincides with stocks rebounding in early May after first falling into bear market territory.
A break above that 100 day moving average level in combination with any serious signs of moderate inflation and I may be tempted to turn bullish. Or at least a more balanced portfolio than the straight-up shorting of the market that we’re doing now.
It’s funny. During a bull market, investors have great patience to wait through all kinds of pullbacks and corrections for the next move higher.
Yet during a bear market… there is almost no patience to be found. Kind of hypocritical when you think about it because they are both long-term processes that take some time to complete their work.
It tells us to be students of history. The negative side is not fully played out in assessing the economic cycle which will include falling incomes and job losses.
When those shoes drop…and they will…then investors will quickly abandon any false bullish aspirations. This will generate wave after wave of downside. And when it looks like there is no hope… that’s the bottom… and that’s when the next bull market will appear.
When you appreciate these lessons from history it’s hard to make a serious statement that we’ve already found the bottom and that this is ripe soil for another long-term bull market to grow. We need more downside for that to happen. And that means we need more time.
Be patient friends. It may take longer than previously believed. But still say our bearish portfolio strategy is still on the right side of history.
What to do now?
Right now there are 6 positions in my hand-picked portfolio that will not only protect you from the upcoming bear market, but also deliver substantial gains when the stock heads lower.
Just as our members profited handsomely in June when the market finally dipped into bear market territory.
This unique strategy fits perfectly with the mission of my Reitmeister Total Return service. It is to provide positive returns…Even in the face of a roaring bear market.
Come find out what my 40 years of investment experience can do for you.
Plus get access to my complete portfolio of 6 timely trades to not only survive…but thrive in this brutal bear market environment that is far from over.
Click here to learn more >
Wishing you a world of investment success!
Steve Reitmeister…but everyone calls me Reitie (pronounced “rightie”)
CEO, Stock News Network and Editor, Reitmeister Total Returns
SPY shares. Year-to-date, SPY is down -16.80%, versus a % increase in the benchmark S&P 500 index over the same period.
About the Author: Steve Reitmeister
Steve is known to StockNews viewers as “Riety”. Not only is he the firm’s CEO, he also shares his 40 years of investment experience with the Reitmeister Total Return portfolio. Learn more about Reity’s background, as well as links to his recent articles and stock picks.
Post Investors: Do you have the patience to weather this bear market? Appeared in the first StockNews.com