It’s now been over a month since the market (the S&P 500 Index*) made new lows. We haven’t had the heck scared out of us or seen new degrees of ‘downness’ for over a month. Does this, by itself, mean anything? No, it doesn’t mean the market won’t make new lows — there are just too many unknowns: status of the Fed’s hikes, economic cycles, and earnings announcements are all in the way, but as we’ve said before the market must stop going down before it can go up. With all of the bad news lately, the fact that markets have not (yet) created another new low  is a pretty positive development, at least that’s the view from my seat.

Don’t jump to the conclusion that I think all is now well, or that we’ve morphed into a new bull market. As a matter of fact, I expect that this is likely to be a long bottoming process with lots of slog. Most likely there will be fits and starts as all of us try to get a handle on the outlook for the future. Most Important I think is the Fed action. WHEN will Jerome Powell and company stop with the rate hikes? Will the economy, the consumer, and corporate stock prices still be standing? Or more succinctly, can the economy stay out of the ditch while the Fed has the brakes full-on?

The argument for the bulls is fairly clear. Consumers will remain resilient and be the ultimate winners and here’s why: they have cash in the bank, jobs are (still) plentiful, and the wealth effect of high home prices help them feel strong. (Yes, home prices are a bit wobbly but there’s no reason to think that they are 2008 wobbly). And there’s this: historically IF the economy does manage to avoid a recession, bear market declines TEND to bottom out after a drop to the low 20’s.  The S&P Index was down 23.5% at its low, so we can make the argument that the next big move should be up. With some evidence that inflation MAY be peaking many are trying to look ahead toward brighter days — which means buying stocks now for the future. (As long as one’s timeframe is long enough, of course.)

Unsurprisingly, the bears have a different set of points to argue: the economy seems to be deteriorating at an amazingly fast rate. Inflation is at the highest rate seen in over 40 years. Add in the facts that the money supply has gone negative (a typical precursor to recessions) and Small business optimism is the lowest in history, and home prices are softening, if not actually pulling back. For what it’s worth, economic slowdowns look even worse outside of the USA. And there’s also the Crypto collapse.

So, it would appear that both sides have some decent arguments these days. From my seat, this is the explanation why stock and bond prices have NOT kept falling recently. It is the argument between sides that is keeping stock prices from dropping lower (or meaningfully lower). My thinking, as I stated above, is that we can expect to see this action for a while. We have a stalemate in which headlines of sentiment, empire manufacturing reports, and corporate earnings first create a nice rally, and then watch the short-term gains disappear.

Ron’s Market Minute: But then, Yesterday was one of those days-

Remembering that there is no such thing as a one-day trend, Thursday market prints looked rather promising.  See the chart of the S&P Index so far this year:

We’ve walked you through a number of these charts using the new GONOGO charting tool. Each vertical bar represents the market action for one day. The key is that since the beginning of this year, there have been VERY FEW up days, as signified by the light blue (market uptrend) or even better dark blue (strong market uptrend) days.  Most of the year has been ugly pink and dark purple down days.  But we have seen an occasional glimmer of hope when the market has printed brown (indecisive) days.  Could the market be in process of changing direction? And yesterday another light blue- up day.  We can’t predict the future, of course, but we did see a lot of dollars move off of the sidelines in the hope that this will give more strength to the bull’s argument, and the bottoming process will continue to move UP.  We are definitely in a bear market, and strange things happen, but our fingers are crossed.  

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite D406A
Phoenix, AZ 85051
Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk
www.denkinvest.com

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