July 25, 2022
With the S&P posting its worst first-half performance in more than 50 years — one could easily get sucked into a “buy the dip & get rich quick” mindset.
But a degree of caution is duly warranted as attempts to prematurely call the bottom typically end in some pretty dire financial consequences.
Looking back to 2008, for instance… the “first lows” weren’t the “lowest lows.”
Thus, being mindful to never sail out farther than you can row back… Bank of America’s newly-released fund manager survey could easily have you believing that a full capitulation in US stocks has already manifested with a major rally just around the corner.
Their lead strategist wrote, “Second half 2022 fundamentals are poor but sentiment says stocks/credit rally in coming weeks.”
Let’s pause a moment and take a look at some current indicators that paint a far murkier financial picture.
First, a US recession is indeed looming… and we could have final confirmation of that this week as the Bureau of Economic Analysis releases its Q2 GDP numbers on July 28.
Remember, two consecutive quarterly contractions make a recession: Q1 GDP came in at -1.6% and the Atlanta Fed’s outlook for Q2 has now reversed course from “mildly positive” to “flashing red” at the same -1.6% as Q1.
Major US corporations are already preparing for the worst.
Apple just announced its intent to slow hiring and rein in spending next year to adjust for what it sees as a potential economic downturn.
We’re seeing Q2 earnings misses across-the-board… from the airlines to big oil… from the big banks to tech… all the way down to America’s beloved burger and pizza chains.
On the banking side, JP Morgan, in its Q2 earnings miss, cited ‘never-before-seen’ conditions leading to a precipitous drop in earnings of nearly a full third with shares posting a fresh 52-week low amid geopolitical upheaval, record high inflation, and waning consumer confidence.
It’s no wonder fear on Wall Street and Main Street is rising sharply!
Inflation — as you know by now — reached a four-decade peak of 9.1% last month.
And while things are starting to cool just a tad… a return to anything even remotely “normal” will be painfully slow given that policymakers generally view “healthy” inflation as being somewhere in the neighborhood of a paltry 2%.
At the current rate, few if any are being spared… and pretty much everyone is feeling the pinch and spending less on discretionary items.
The end result is the Fed continuing to raise rates in its ongoing battle to rein in inflation while, hopefully, staving off an extended period of stagflation.
That uptick in hawkishness will likely mean even more stock market pain over the coming weeks and months… especially with global growth and profit expectations at an all-time low and with recession expectations being at their highest level since the pandemic-fueled slowdown of 2020.
Investor allocation to US stocks has already plunged to levels not seen since October 2008. Yet, we all remember what happened to stocks at that point in The Great Recession: the S&P hemorrhaged another 25% before finally putting in a bottom.
Hence, a fair amount of caution is duly warranted at this juncture in the current bear market.
Remember, there’s really no need to call the exact bottom… the main idea is to protect one’s hard-earned capital in order to have it ready-to-deploy when the signal flashes green.
So... how to position defensively while all of this negativity plays out?
With the US Dollar Index (DXY) surging to levels not seen in two full decades — cash is certainly king.
In fact, just last week, the greenback attained parity with the euro for the first time since 2002 amid growing recession fears brought on by a sharp rise in energy supply uncertainty resulting from Russia’s invasion of Ukraine.
And the list goes on and on and on...
With almost every sector of the S&P down sharply for the year… those elusive bright spots are becoming increasingly difficult to come by.
Yet, for those seeking high-level, unfiltered and unbiased financial guidance — our own Nick Hodge of Foundational Profits is one of the few market experts out there willing — and more than happy — to tell it to you straight!
Nick was early to warn of an approaching economic slowdown and market reversal and has been positioning his readers accordingly since Q4 of last year.
Not only did Nick fire his professional money manager… he increased his cash position by systematically paring down his portfolio holdings to a more defensive posture — and he urged his readers to do the same.
It’s a far, far cry from the hordes of financial pundits out there who seemingly are only interested in pounding the table on the same old asset classes — and the same old stocks — no matter which way the market winds are blowing.
Conversely, in the monthly pages of Foundational Profits, Nick pulls back the curtain on what he’s doing with his own personal capital in his own retirement accounts… or, in other words, his “safe” or “foundational” capital.
Now, more than ever, Nick’s unique macro-based approach to wealth-building is of unrivaled value as he shows his readers exactly how to position during these uncertain times while also shedding a clear and consistent light on the macro indicators that, eventually, will get us out of the current market malaise and back to better times.
He also guides his readers via a set of values and directives designed to insulate oneself from America’s so-called leaders who, these days, only seem interested in protecting themselves.
The idea is to elevate one’s “sovereignty” in a world where our civil liberties and financial freedoms are continuously being challenged and threatened by dishonest, power-hungry politicians who’ve clearly lost their way.
If honesty, integrity, and transparency in a seasoned financial writer are high on your value list but have been all but absent elsewhere — be sure to click here for a brief video preview of Nick’s just-released July issue… plus a sneak peak into what you can expect each and every month in the pages of Foundational Profits.
Editor, Resource Stock Digest