Four weeks ago, the stock market was at an important base level. Since then, high volatility and widespread warnings of recession have put a strain on investors’ nerves. The test has just ended with the stock market returning above this base level. Here is the photo…
It’s now that reality replaces guesswork
Remember: the stock market is the best leading indicator of what’s to come. Its recent volatile but positive action at the low of the sell-off (as investors suffered a flood of recessionary omens) is particularly noteworthy.
It’s important to note that good results happen during earnings season, when reality outweighs guesswork. Moreover, Wall Street is now fully in its forecast for 2023. The third quarter of 2022 has passed, and the fourth quarter of strong GDP growth has arrived. This opens up 2023 to broader analysis and predictions.
The Happy Result of Negativity: All the Positives Shine Brightly
An old stock market adage goes something like this: When “they” can’t take them (stocks) down anymore, they go up them. Applied to today’s market, this means that when repetitive scares no longer produce selling, it’s time to buy because the negativity effect and downtrend in the market are over.
The Bottom Line: Investing in stocks is a step-by-step process
The stock market is always in a state of flux. Therefore, an accurate view now may become less useful later. More often than not, a view is altered, amended or improved over time. It can also become more precise thanks to new complementary information. What happened recently in the stock market is a good example.
For this reason, I’ve linked my previous five articles (in chronological order) that led up to this one. I have included “The bottom line” paragraphs because they capture a point of particular importance at the time.
“The Bottom Line: Today’s Widespread Negativity Makes the Stock Market Ripe for a Surprise Rise”
“It’s a rule: when ‘everyone’ is bearish, it’s time to own stocks. The simple rationale is that, regardless of negative fundamentals, sell-off stock prices provide a good opportunity.”
“The bottom line: never bet against common sense”
“‘Common sense’ plays a big part in contrarian thinking because popular logic below (and above) always lacks it. Instead, artificial explanations are created to support the belief that things are not overworked.
“A helpful sign that common sense is not at work is when you have an absolute sense that the current trend is here to stay. (At times like this, even professional investors get these deceptive feelings.)”
“The End Result – Wall Street Wants What It Can’t Get: Yesterday”
“Yesterday is gone, but the damage isn’t. That’s why it’s important not to look for ‘dead cat bounces’. The strategy of using low-cost debt to produce desirable outcomes is, it -even, dead. This tactic can be found in many places outside of Wall St. Even operating companies and pension funds that should be better known have been lured in by the easy gain through debt calculus. .
“As a result, index fund returns could be weakened due to the passive, own-it-all approach. Therefore, a better strategy is likely to be to invest in actively managed funds – those where the fund managers and analysts are established experts. They will only focus on the future, not on reinventing the good old days.”
“The Bottom Line – The Stock Market Looks Forward, So Don’t Wait for the Dust to Settle”
“Often we hear or read after a major trend change, ‘No one could have known.’ In fact, yes, many investors predict what’s to come. While it’s probably not the same people for every major move, the stars still align for some. After all, someone has to initiate the purchase or sale necessary to reverse a trend.
“So is it time to own stocks?
“Looks like. Even if the Fed continues to raise interest rates and the inflation rate remains high, clear and positive changes are happening. Then there’s this ‘only visible good news’ – that the inflation rate, although high, has not increased for months.”
“The End Result – Interest Rates Are Not Everything”
“…high real rates do not automatically produce recessions. For a recession (AKA, negative reversal) to set in, there must also be a fundamental reason for it to occur. Typically, these The reasons are economic, financial, and/or investment excesses or imbalances that require correction, otherwise the higher real rates may simply be caused by healthy demand for capital.