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SPY: Why The Stock Market Likely Hasn't Bottomed

Aug. 01, 2022 5:49 PM ETSPDR® S&P 500 ETF Trust (SPY)89 Comments
Logan Kane profile picture
Logan Kane


  • Rallies of 10% or more are surprisingly common in bear markets.
  • The market is encouraged by weakening economic data, thinking the Fed will bail it out with rate cuts and more QE, but the American public and policymakers are not in favor.
  • Cash is an increasingly viable alternative to stocks, and is likely to pay 4% or higher by year-end, risk-free.
  • The debt and demographic issues with the US economy and the global economy are structural and will not be fixed overnight. Investors need more compensation for these than they're getting at current prices.
  • Markets are roughly 20% overvalued at current prices.
Federal Reserve Chair Jerome Powell Announces Fed Decision On Interest Rates

Samuel Corum

History Shows That Sharp Rallies Are Common In Bear Markets

Stocks have staged a furious rally off of the June lows, with the S&P 500 (NYSEARCA:SPY) rallying nearly 13%. The index is now down less than 14% for the year. Are investors

This article was written by

Logan Kane profile picture
Author and entrepreneur. My articles typically cover macroeconomic trends, portfolio strategy, value investing, and behavioral finance. I like to profit from the biases and constraints of other investors.You can read some more of my work for free here.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (89)

its funny how people are wrong all the time. i dont write articles and i called bottom right twice in a roll, march and july. stocks are flying to all new high with Fed giving up on fightign inflation. just have to pay attention to Powell.
we will see.......no one sees the bottom..imo it seems it is bottomed but again who knows....due your own reseearch...oil has peaked those 200 dollar oil calls are now worthless.......peak inflation hit and its over........
One more leg down does seem probable. 3200 is a bit on the low side, another drop has to test the 3600 level we bottomed at. If that fails then 3400 is likely. I don’t see 3200 happening unless we have another wave down from another bear market rally. Since there’s no bell ringing at the bottom, but we know the market moves in waves, I’m taking the pragmatic approach of buying more on each leg down. At 3400 I will be all in though. Currently about 70% in (30% cash). Not buying the index. Too much junk in it. Buy quality large cap companies and cyclicals instead as they drop. And oversold stuff like NFLX.
Thanks author for his interesting prognostic. Central governors use to consider 2% inflation as preferable rate. But things have changed a lot since the whole world, both central banks, corporations and individuals, is overloaded with debts. High inflation (but not too high as double digit) with negative rate makes the repayment efforts easier. US big companies are in the best shape comparing to last twenty years but US government debts are sky high. Why hurt American corporations by rising taxes when negative real rate transfers the burden to foreign lenders? A devaluated US dollar will help export by the meantime diminishing imports.
@david8fu real inflation that real people are suffering is double digits already . The official figures are made to be lower for political reasons.
Nate_Z profile picture
Loved your articles couple years ago on how to build an ETF portfolio. Can you do a new one with the current environment?
Logan Kane profile picture
@Nate_Z I could, but might wait for reality to hit the Treasury market in a few months first!
ContrarianGrowthNoExceptions profile picture
Dear author, how do you make 2.5% in cash? 3 month US treasuries are at 2.3%. I don't see liquid saving account paying 2.5%

Many use such short US treasuries as a cash substitute, so I suspect that was the author's meaning.
COT SG profile picture
02 Aug. 2022
Sp500 reaches 4160, you get 4000 coming first. When weakness set in 3800 be tested before 3625 (year low) get tested. Then you can your 3200-3300 level. Likley in late sept. Coming from an asian. Good article, dont mss your boat when 3200 strikes, deploy 40% cash
The yield curve remains inverted. Do not need to say much more.
Logan, I agree with the majority of your thoughts. However, I think that you have given the Fed way too much credit. They have brought this lack of credibility upon themselves, and there really is a lot of doubt in my mind as to whether they have the spine to do what needs to be done to bring down inflation. I was around when Paul Volcker did what needed to be done. It was not easy, and he was absolutely vilified at the time. I haven't seen that kind of backbone in the Fed since, and Lord knows, our politicians and media will not help. So, I will harbor some doubts about their resolve until they prove themselves.
jz10 profile picture
@RNArizona The Fed knows very well that the consequence of not taming inflation will be uncontrollable dollar devaluation. You don't want the entire world to dump dollars for hard assets.
I freaking love this phrase: "paying a 13% higher price for a market that has the same structural issues it had a month ago does not appeal to me"
3 facts you're missing out
1) we're not in a recession
2) best economy in over 40 years
3) massive amount of money in households
cdgingrich profile picture
@Finding Your Retirement - Reminds me of:
1. You can keep your current Healthcare Policy.
2. You can keep your current doctor and hospital.
3. You'll save $2500/year on healthcare costs.
Ghost of Graham profile picture
@Finding Your Retirement I'm not sure what you mean by "not in a recession" unless you're taking the new Fed definition they like, which hides the fact that we've had two quarters of begative GDP growth (that's a recession). So, we could be and likely are in our third quarter of recession.

I also don't know what you mean by "best economy" in over 40 years, when we have consumer centiment at 40 year lows, interest rate hunting inflation all the way up to snuff out all growth, the big corporate players all hording cash and freezing hiring, and of course the Fed pulling 95 billion from the markets every month. This incredible combo is a down escalator that people are trying to run up.

And I don't know what you mean by "massive amounts of money in households", when mortgage and credit card debt is at an all-time high, stimulus cheques have ceased, quit rate is falling...

There is excitement still around the FANG stocks. People haven't clued in and sold their Amazon and Tesla shares at +100 X earnings. Is that your marker of a "best economy"? Because I'm not sure what is, otherwise.

Maybe this was bait for a rational observer to jump at, but I took it!
When US equities rally because the earnings were less BAD is a problem for investors….

Both GOOGL and MSFT missed earnings, but rallied is a false positive for investors….

The equities market have a long way to fall, when rates and energy driven inflation return this fall….

Russia cutoff Nat Gas to Europe is a big deal for economic global growth, of which US Corporate earnings is a part….earnings could fall anywhere between 15% to 35% in the coming quarters….

The current equity rally was a “Bear Trap” for long term investor…

Buckle Up
Excellent summary of the current goings on in this market. I keep hearing the Fed is stuck. Couldn't they stop the hikes after September or the election, tell folks 5-6% inflation is the achievable target and it is sticking around for a little while longer then go into easing to help grow us out of the current supply issues. It would suck but not as bad as a recession.
thirdcamper profile picture
Very nice summary of exactly what I have been thinking and saying as well.

The only thing you might also want to start examining and folding into your analysis is that typically markets overshoot. So if the market is still 20% overvalued, a 30% drop is entirely possible, and perhaps even likely, based on history.
TigerCub911 profile picture
We could go up higher than 4200 on SPX, maybe a lot higher before it goes down to 3200. Roasting the shorts and then the longs... On the bright side, we can try to make money both ways...
The Fed's Daly just hinted that September could be a .75% hike. They would better to call for an unscheduled August meeting with a .5 hike and another .5 at the regular September meeting.
Diesel profile picture
Bear markets don't die when all the bad news dies. Bear markets die when the market stops caring about those bad news. When 2008-2009 bear market reached a bottom in March 2009, the economy was still in terrible shape and not getting any better. When we bottomed in 2020, the pandemic was still raging and half the global economy was still shutdown. During WW2, market bottomed a year before the war actually ended. If you wait for all problems to be resolved before market bottoms, it won't happen.

Also, the 40-year average P/E for SP500 is 23 vs. current P/E of 17. The issue is not valuations since valuations look historically cheap.
@Diesel what if earnings contract. Then the P/E won’t be so cheap.
bear markets die when all the dumb money that bought near the highs has bailed out of the market
@Cali Oil_Col Ag good thing they havent been for the big dogs Apple and Microsoft
Equity mkt has just become a passive investment Ponzi predicated entirely on interest rates. When rates go down, or expected to go down, people just buy whatever. When rates go up it's the opposite.
@toms57363 you just get to buy them for cheaper
Powell made at least two unforced errors in his press conference:

“As the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases while we assess how our cumulative policy adjustments are affecting the economy and inflation,” he said.

The market took this and the "neutral" comment and ran with it. He just made his inflation fighting job harder. There should be no talk of slowing down rate increases in frequency or magnitude until inflation comes down substantially. And that $700 billion bill will not help either. Remember the government does not "invest" it reallocates resources, most frequently in an unproductive way.
@dstb I agree. Especially as it appears to be their strategy anyway to get reaction from the market based on what they say and not necessarily what they do.
snoopy44 profile picture
Treasury bills that pay 4% when inflation is at 9% means you are LOSING ground. This Schumer/Manchin bill is nothing more than pork and will NOT reduce the deficit. Btw, not to be political but I believe Trump was the one who brought down insulin prices but as soon as Biden arrived, he canceled that program.
DC is totally dysfunctional.
@snoopy44 Trump imposed a regulation to bring down insulin prices at Federal Medical Centers -- not everywhere. Also, it was never implemented, so prices never came down.
nom de fig profile picture
@snoopy44 Almost always since around ‘95 when I started buying bonds, in my view bond yields on investment grade corporates have been lower than my personal inflation rate. Treasuries offer even lower yields. I’ve seen charts that state bonds have paid higher rates than inflation, but I’ve rarely seen it. It happens during market crashes, and if you load up then, you’re golden.
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