This Rally Is Likely More Fragile Than You Think
Editor's note: Don't be fooled by this short-term rally...
Investors have experienced a brutal year, as stocks have tumbled due to ongoing volatility. And with many market experts predicting that this chaos could last much longer, folks are desperate for good news as we approach the end of the year.
That's why the uptrend in the broad market over the past month could tempt some investors to put their money to work. But Marc Chaikin – founder of our corporate affiliate Chaikin Analytics – believes this rally won't stop the market's longer-term downturn...
In today's Masters Series, originally from the November 14 issue of the Chaikin PowerFeed daily e-letter, Marc explains why the recent bear market rally could be misleading... reviews how previous rallies this year played out... and discusses the long-term implications of this brief uptrend...
This Rally Is Likely More Fragile Than You Think
Another surge of optimism is underway in the markets...
As I'm sure you know by now, the latest inflation report came out last Thursday. And notably, the numbers came in a little bit better than the experts expected.
Specifically, the Consumer Price Index ("CPI") experienced its smallest monthly increase since January. Unfortunately, the year-over-year increase in the CPI was still more than 7%.
In other words, inflation remains really high. It's still near its highest level since the 1980s.
Despite that, another bear market rally is playing out. Thanks to the latest surge of optimism, stocks are moving higher again. The S&P 500 Index is up around 7% over the past month.
Some folks even believe the Federal Reserve will end its tightening cycle. Take a look...
Now, I'm not trying to be a curmudgeon. I'm glad people are feeling hopeful.
After all, we've endured a brutal year as investors. Even with the recent one-month rally, the S&P 500 is still down roughly 17% this year.
But the truth is, bursts of hope and optimism are normal during bear markets. And brief rallies like the one happening right now don't mean the pain is completely over.
In fact, recent history shows us that these types of rallies can be incredibly fragile...
It's amazing how quickly investors forget.
The slightest bit of good news can send stocks soaring during a downturn. And that can happen even when major economic headwinds remain.
With just a quick look at the S&P 500's chart, you can tell that we've taken this road before. Heck, we've already seen it twice in the current downturn. Take a look...
Starting in early March, the market rallied nearly 11%. But unfortunately, overly optimistic investors got burned again when the market's longer-term downturn resumed.
Next, a major rally started in June. The S&P 500 soared more than 17% from its bottom.
I think all of us hoped that would be the end of this bear market. But inflation persisted. And the Fed had little choice but to keep tightening its grip in response.
Today, the market is up about 10% from its latest bottom. And as I said, another huge outpouring of investor optimism is underway – especially with the holiday season quickly approaching. Folks are getting excited again.
But that doesn't change the big picture...
The war in Ukraine is still disrupting the oil and gas sector, as well as other global commodities. Serious inflation problems remain for much of the world. And Fortune 500 companies are in one of the deepest layoff cycles in decades.
Will things get better eventually? Of course.
We can still be realistic about what's happening, though...
After the end of the housing crash, the market soared. It became one of the greatest asset booms in history.
Today, we're facing a very different reality. The Fed is still battling high inflation. And interest rates are soaring in response.
That's a major headwind for stocks. But importantly... that doesn't mean we've run out of opportunities.
More simply... it ain't over till it's over.
Good investing,
Marc Chaikin
Editor's note: Marc predicted the COVID-19 crash and the 2022 sell-off. And just last week, he came forward with a new warning...
Marc recently hosted a presentation to discuss a massive shift that's coming to the U.S. financial system... one that could have a huge impact on your wealth in 2023. And just for tuning in, you'll get a free recommendation as well. Click here to watch the full replay...