Stock Market Update: It’s Complicated! Is it a bull market or a bear market? Indeed that is the question. The unfortunate answer is that ITS COMPLICATED. Steve Reitmeister spells out the rest in this new...
This story originally appeared on WallStreetZen
The title for this month’s commentary sums up everything quite well: It’s Complicated!
That’s because you can easily see the elements that would bring about recession and bear market. Just as simply you can imagine how any positive momentum on tariffs puts these nightmares behind us with resumption of the bull market and new highs on the way.
The heart of our commentary today will be about giving updates on this complicated situation and what that means for our investment strategy. Plus a preview of my top stock recommendations.
Market Commentary
My April 23rd Zen Investor webinar spelled out this complication by sharing the bear case for stocks followed by the bull case. In the end I gave a slight nod to the bullish case being the most likely...but it is not a “knock out” blow by any means with more rounds to be fought before the final decision is in.
Since that report we find that Q1 GDP was indeed in negative territory at -0.3%. And more economists are pointing to the fact that the recession may already be unfolding with signs of Covid style supply chain disruptions soon in hand.
John Mauldin had a very timely piece on this subject that is worth your attention: Soft Data Gets Softer.
Here is the key excerpt I want to share where Mauldin sites recent thoughts by David Bahnsen:
“Supply chains are complicated things and any attempt for a portfolio manager with a macroeconomic focus to unpack the particulars of supply chains as if they were monolithic would be highly unsatisfying. That said, we know general high level timing things, filled with caveats as they are, and we can safely say the following:
- Containers in transit have already begun delays and cancellations
- Deliveries to ports are likely to see substantial declines by mid and late May
- Trucking demand then ceases/collapses from there
- Store shelves begin to seem emptier by early June
- Layoffs likely follow the second, third, and fourth of the above steps
- Then a recession call gets easier to make (if it hasn't been made already)
“Resuming trade is the first domino that softens or reverses all the others. Capex and New Orders probably do not turn back on like a light switch, but the lights cannot even begin to fade up until the switch is hit, which cannot happen while trade is so diminished. This is the domain most worth watching.”
If correct, then it equates to higher likelihood of recession > bear market > investor unhappiness ;-(
Before you sell everything and hide in cash, its important to consider the other side. That being a recession caused by tariff uncertainty is SOLVED by tariff certainty. And that may be quickly solved in the next few months.
Meaning that if this 90 day tariff hiatus proves to be fertile soil for growing more beneficial trade deals (especially with China) then this problem quickly blows away. That would usher in the next wave of economic growth > share price appreciation > investor joy!
Perhaps the best world scenario would be just enough of an economic scare to get the Fed to lower rates once or more this summer to help ward off recession and job loss. Obviously a lower rate environment is a good catalyst for growth and investors rushing back to stocks.
Which will it be???
I would love to confess that the outcome is obvious. Yet with my Economics degree in hand, along with 45 years of investing experience, I know it is foolish to claim such clairvoyance.
It’s like a math equation where there are too many unknown variables making it impossible to solve. Meaning we need more information to determine the final outcome. Most of that surrounding more clarity on tariffs and world trade.
At this stage I need to stick with my prediction from the April 23rd webinar. That being a slight nod towards bullish outcome given the historical example from the 2018/2019 trade war started by the Trump administration.
In that case a nasty correction gave way to healthy resumption of the bull market with new highs soon in hand.
That would be accomplished by more reasonable terms agreed to in the end than those demanded up front. What many are calling his “Art of the Deal” style of negotiation. This time on a much larger scale.
I hope that is true. That we put away the farce that trade deficits are in any way equivalent to tariffs. And that we move closer to free trade then what is on the table now.
I could wrap up the commentary here. Simply say its complicated. Time will tell. And thus we proceed cautiously with our investment approach.
But I do want to add that there are TOO MANY comments from the Trump administration that tariffs will make us rich and maybe eliminate or greatly lower the need for income taxes.
That is fantasy!!!
That is not a political comment. That is a statement of fact that 99% of economists would agree with. Unfortunately, this administration seems to be listening to the 1% with their heads firmly stuck up their rectums.
Again...not a political comment.
Just calling it the way I see it. And thus, the more I see us sticking to our guns on high tariffs...the more I am certain a recession and bear market is on the way.
Let’s hope we avoid that fate. But because a real possibility, then we need to take a more cautious approach to investing at this time. Like my previous recommendations to consider 25-50% in cash because of downside potential.
And yes, those comments remain in place after the latest rally. Most bear markets are a process with multiple tests of the lows followed by big bounces...and then lower lows are made.
Don’t read that to mean I have now gone bearish. I remain cautious with a slight bias towards bullish outcome. Yet am fully aware of what would lead us to recession and a change of investment plan.
We just need more time and more variables to be spelled out in the investment equation. When that happens, I will most certainly share those insights with you.
Until then best to remain cautiously optimistic.
What To Do Next?
Discover the Zen Investor service where I share a detailed investment plan and portfolio with top stock recommendations that are geared for today’s volatile market environment.
Again, I have been investing for 45 years allowing me to learn lessons from 7 bear markets…8 bull markets and just about everything else the “Mr. Market” can throw at us.
I use this knowledge to create a detailed investment plan. Then lean into our proven Zen Ratings quant model that has produced an average +32.52% annual return since 2003.
In total the Zen Investor portfolio now has 18 stocks that are hand picked for today’s unique market landscape.
That includes 3 new stocks added in early May to stand up to recent market volatility and yet still provide attractive upside.
If you are curious to learn more, and want to see my current top stocks, then please click the link below to get started now.
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Wishing you a world of investment success!
Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
Editor of the Zen Investor
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