The S&P 500 came back from the long weekend in a foul mood, shedding another 2% and finishing at the lowest levels since late January.
Half-full or half-empty? Thus far the pessimists have been dominating the market’s mood. The current line of reasoning is the economy is “too good” and that will require the Fed to be even more aggressive with its rate hikes to push the economy into a recession.
The problem with this line of thought is the Fed is not trying to push the economy into a recession. If the Fed can tame inflation without a recession, that would be the best possible outcome. But so far traders are more fixated on the half-empty side of the glass and don’t want to think about positive interpretations of recent data points.
But for all of the people calling for the indexes to tumble another 10% from here, I just don’t see it. We reached those 2022 lows when fear and uncertainty were at their peak. When we had no idea how high inflation would get, how devastating the rate hikes would be, or how bad the energy situation would get following Russia’s invasion of Ukraine.
Well, over the last year we gained a lot more clarity. Inflation is no longer spiraling out of control and has come a long way off of the summer highs near 9%. Consumers still have jobs and money to spend. And Europe is navigating the energy crisis a lot better than many envisioned. So what’s not to like?
In truth, the market’s recent slump is a lot easier to explain, stocks rallied nicely off of last year’s lows and it is simply time for one of those very normal and healthy stepbacks. Nothing more and nothing less.
Despite what the naysayers claim, we are actually navigating all of the risks surrounding us quite nicely. Inflation is coming down and the current 6% readings are exaggerated because the way rent is calculated doesn’t show the month-to-month declines in lease renewal rates.
Rather than run and hide, this is the time to be looking for the next buyable bounce. Friday’s midday bounce looked good to me and I bought a partial position, but obviously, it didn’t work. Fortunately, my trading starts small, gets in early, and kept a stop nearby. So while Friday’s bounce didn’t work, it didn’t cost me much.
In fact, Tuesday’s wave of selling is actually good for me personally because it means I will be able to make even more money buying the next bonce. And if the next bounce fails, that’s alright too, I get out and try again from even more attractive levels.
A lot of traders need to be right, lucky for me, I’m only here to make money and that makes navigating these whipsaws so much easier.
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Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two children.
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