This Bear Market Won’t Bottom Until….
I’m making a bold call today…This bear market won’t bottom until the S&P 500 returns to its pandemic lows. I don’t say this lightly. It’s not some whim or gut feeling… Because the biggest money of all tipped me off. And this wouldn’t be the first time… See, back when the pandemic was still just a rumor, our company was in Orlando for an annual retreat. Like any normal day, Universal Studios was swarming with people. Lines of people wrapped around each ride. Then, a few weeks later, the whole world shut down. Universal became a ghost town overnight. But I wasn’t surprised — because sitting in a conference room in Orlando, I got a tip about the whole chain of events to come… From the one and only Federal Reserve.
Something’s Not Adding Up
The Fed’s decision to slash their benchmark rate back to the zero bound — a whole percentage point drop — told me that 2020 was about to get a whole lot worse.Sure enough, it did. And right now, the Fed’s flashing the warning sign again… Only this time, it’s with back-to-back rate hikes of 0.50% and 0.75%. The last time the Fed raised rates was back in 2017. Just like this year, they were raising rates off the zero bound. Back then, though, they began with small 0.25 percentage point hikes — minimal moves to gradually adjust the market. What they’re doing now, by contrast, is a shock to the economy. And these moves just keep coming, every meeting… Think about what the Fed is trying to do. They want to kill off inflation, right? That’s why they started aggressively raising rates by 0.50%. So why were they so alarmed when inflation data came in barely above expectations last week? Something’s not adding up. I think the Fed knows it’s about to get even worse out there. That’s why they upped the ante. To me, this says they’re extremely worried about inflation. They’re behind the curve. And they’re more than willing to send the economy spiraling into a recession to stop it. Any sort of soft landing was thrown out the window last week. The Fed is on a full-blown crash course to wreck the economy in order to stave off inflation.
My Bear Market Bottom…
At this point, calling a recession feels like a 100% lock. And as the economy starts to contract, the market will crash even further from here.This could take up to a year to play out. Or it could happen next month. All I know is that the Fed’s actions last week are tipping us off to an even more dire outlook than we probably imagined. As a result, I’m placing my bear market bottom for the S&P 500 at 2,300 — the lows from the pandemic crash. That’s a 40% drop for the S&P 500 from current levels, and a total decline of over 50% from the highs. It won’t be straight down. There will be bear market rallies along the way. And no matter what, we can still make money. That’s the beauty of being an options trader… But now more than ever, I’m bearish on the outlook for the stock market.
Regards,Chad Shoop, CMTEditor, True Options Masters
Investing has consumed my life since college. While double majoring in finance and economics at the University of North Carolina at Greensboro, I founded the university’s economics club, joined the finance club and participated in the Chartered Financial Analyst research competition to represent our school.