We are in the middle of April...in the middle of tariff negotiations putting the world economy on hold...in the middle of the range between the recent highs and recent lows for the S&P 500 (SPY).
Not surprisingly my trading plan is in the middle at only 50% invested.
Let’s discuss this balancing act and what likely comes next in this week’s edition of the Reitmeister Total Return commentary.
Market Outlook
As shared last week we were not officially in bear market territory and the market looked ripe for a capitulation bounce. Helping matters was Trumps 4/9 announcement to delay his bigger tariff levies for 90 days to have more time to negotiate deals.
So back to last week’s contemplation; Was the “reciprocal” tariffs all just a negotiating ploy or do they really not understand economics and how trade deficits and tariffs are 2 very different things???
That was answered fairly quickly in that it was just all part of a plan to push folks to negotiate with the US given the 90 day hiatus that unfolded very quickly. However, still possible they don’t truly understand the economics of it all (to be determined).
China took a step in the other direction and now we are playing a game over rising tariffs. Everything I read on that front says that nobody wins in that kind of escalation. In fact, the level of tariffs on US goods in China is so high as to effectively guarantee that US imports will drop to near zero from over $100 billion. So, it will be interesting to see who backs down first.
There is a solid chance that this is round 1 of many concessions to find more reasonable tariff terms. If so, then the fear of inflation and recession abate with the worst behind us. Meaning it is possible we made it to the brink of bear market territory and reversed course just in time to keep the bull market on track.
On the other hand, we may have to wait a lot longer to find out answers about how this all ends. Indeed, things could turn uglier...and recession and bear market may still be in our future.
It’s important to note that the average bear markets lasts 13 months on average as it takes time for things to unfold. The Covid Crisis in 2020 was the rare exception as we violently lost 34% in just 3 weeks time leading to a V bounce and never to look back.
Back to the present situation...what is the market outlook and what is our corresponding trading plan?
50% odds of recession is about what I see across most knowledgeable sources. That is fairly high as academics note the average recession has started when only 40% of prognosticators predict that outcome.
That is kind of a red mark on the report card for Economists and Market Strategists as that is a highly inaccurate track record. Not helping matters is that we were pretty much at this level of certainty of a recession in 2022 which did not end up being the case after all.
Knowing this weak track record...and the ever evolving “Art of the Deal” negotiations from the Trump administration, then I too have to straddle the 50% odds of recession/bear market camp as well.
Meaning I could easily see trade talks going on for too long. That continued uncertainty further hurts consumer/business confidence leading to lower spending > recession > bear market.
On the other hand, if this current 90 day hiatus proves to be fertile soil for growing beneficial trade deals with major partner, especially China, then I think the economy rebounds soon. This makes way for continuation of the bull market with new highs on the way later this year.
I would like to say that knowing the answer is as as easy as following the headlines on trade talks. But it is more complicated than that because there are too many trade deals in motion...and too much change and flip flopping. Meaning that what is said today has virtually no relation to what is said tomorrow.
So expect continued volatility until there is more transparency and consistency in the approach.
Because of that...and because of the still quite high odds of recession...is why I continue to only be 50% invested at this time.
What To Do Next?
Check out my portfolio with hand selected picks for the current market environment:
- 10 stocks to buy
- 1 stock to short
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All the stocks have been selected using the proven outperformance that comes from our POWR Ratings stock selection model which has done 4X better than the S&P 500 since 1999.
Now add in my 44 years of investing experience seeing bull markets...bear markets...and everything between. This helps me pick the right stocks for the current environment.
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SPY shares were trading at $538.02 per share on Tuesday afternoon, down $1.10 (-0.20%). Year-to-date, SPY has declined -7.92%, versus a % rise in the benchmark S&P 500 index during the same period.
About the Author: Steve Reitmeister
Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.
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