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SPY: What's Next For The Market After Taking Out The June Lows?

Logan Kane profile picture
Logan Kane


  • Prices were way too high in 2021 due to a flood of stimulus, free money, and the post-corona YOLO mentality.
  • Stocks are now approaching my fair value estimate of around 3300 on the S&P 500 but may fall below it due to forced selling.
  • With the Fed rapidly hiking rates, cash is soon expected to pay close to 4%. This rewards patient investors who are holding some money back from stocks.
  • What actions to take and what to buy if markets continue to fall.
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Stocks have plunged since mid-August, with the broad S&P 500 Index (NYSEARCA:SPY) closing down roughly 24% for the year as of yesterday. The selloff is widely attributed to the Fed's ongoing battle with inflation, as cash rates push toward 4% and 30-year fixed

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 a beneficial long position in the shares of VEA, VYMI, SCZ, PFFD, NTSX, IJR either through stock ownership, options, or other derivatives. 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 (35)

Well, I go through the Seeking Alpha authors and if I can’t find a single bull, it’s time to do some buying. Besides which, one piece of good news about inflation would tip off a rally, and I would “sell the rip.”

I admit that sounds really dumb...right up until the reversal, lol. And since I day trade, I could jump in to SQQQ at any moment. But this looks like a time where one good surprise would make a shock rally.
thumb.ai profile picture
Cleanest dirty shirt? Money has to go somewhere. If Europe and China troubles are not where investors will want to put money over the next 12 months, then the U.S. looks good.

Money flows to U.S. stocks should support stock prices

Money flows to U.S. bonds should provide relief for Treasury and Fed, correct?

Not yet though:
- Yardeni has money flows still negative for Stock and Bond funds
- Foreign ownership of bonds/bills is effectively flat back to July 2021

A large % of U.S. stocks are foreign owned, increasing over time. Hit 40% in 2019, according to Tax Policy Center. If true, change here has a large impact.
Treasury estimates foreign ownership for June each year. Probably with a different method, and the % of total market cap look much lower, around ~25% by my math. But still growing over the long term.
bengalesq profile picture
I think waiting on a low will take a year or two. In the meantime, I expect strong upside movement from where we are now. Also, by the time a bear trap is known to be off the table and we are seeing a new growth cycle, you have missed out on much of the upside.
The Social Scientist. profile picture
I expressed some of my befuddlement below. I would like to add that Grantham, pointed out some time back, that the best time to own stocks, especially small caps, was from September 30 in the second year of the Presidential cycle until May 31 in the third year. Soon after he wrote that, the fourth quarter of 2018 incurred major losses. So never mind. It's always different.
Index Investing Fan profile picture
Interesting article. Thanks for the read.
Earnst0703 profile picture
Dude, you're gonna be my guide through this recession!
5ofDiamonds profile picture
"1. Why Would You Pay 50x Earnings For Mega-Cap Stocks When Cash Pays 4%?" 2. "Solely on a P/E basis, the S&P 500 looks pretty good here at about 16x earnings, and mid-caps and small caps look better still." @Logan Kane

Both of the above statements are from the article.

I notice a conflict in the thought process. 50x to make one point, and 16x to make another.

Here is an "optimistic" scenario:

1. Q3 Earnnings starting Oct 7th with $JPM will either meet or beat already lowered expectations.
2. Santa Claus will arrive like every year. Wall St analysts need their big bonuses at year end.
3. There is only a finite number of times Wall St can induce fear in retail investors mind to make them sell at lows, so that they can pick stocks cheaper.
4. There is $2.8 Trillion (yes, Trillions) sitting in Savings, waiting to be deployed to stock market.
5. Any successful investor "must" have at least one "contrarian gene". No one ever became successful following the herd.

My 1c.
Logan Kane profile picture
@5ofDiamonds it is a bit of a contradiction, you make a good point. Part of the reason is that the pain of market declines has been pretty broadly distributed, while stocks like Apple and Tesla continue to have valuations that don't make any sense. Someone else suggested equal weight S&P 500 (RSP), I've written positively about it in the past. This might help you express your views without being exposed to really the overvalued stuff.
5ofDiamonds profile picture
@Logan Kane I did not mention, but there are very few articles I read in full (I know, my bad). Yours was one of them. Thank you.

As for $RSP, any ETF that I purchase must meet or beat $SCHD in the last 5, 10, 15 years.
Logan Kane profile picture
RSP has in fact outperformed the S&P 500, but over a longer timeframe. I made a small correction to the subheader on tech stocks btw to make it less confusing.
klipper2 profile picture
A very thorough and masterful analysis, Logan.
A "must read" for everyone.
NIce job.
Liked your article... would suggest you ALSO look overseas for your 'Bezzles' as thats where financial chicanery is more likely after decades of loose money policy in China and Europe and less strict regimes on accounting... there IS nonsense in the US, for sure eg SPACs etc, but Sarbanes Oxley has - in theory at least - meant fewer obvious malfeasance issues. Sarbanes Oxley equivalents dont exist in Europe or Asia
Logan Kane profile picture
@GestaltistView China for sure. That's one of the first places to look for bezzle.

Europe also, but the countries where there's likely to be a lot of fraud (think old Warsaw Pact countries) have tiny market caps.

Japan has come an incredibly long way on corporate governance.

And some smaller well-run markets in Europe (like the Nordics, Netherlands, etc.) have beat the US in returns over the long run, or at least they did last time I looked.
Nick4130 profile picture
Bravo and thank you for this fantastic article! I always look forward to reading your pieces 👍
The Social Scientist. profile picture
RSI(14) is < 30 for IWM, SPY and TLT. I figured they should have bounced, and SPY and IWM did this morning. I have a bunch of money in TIP. I figured a while back that I should at least get the inflation rate as a return, and I bought it when it was already down a lot, but oh no. The real yield has gone from -1.00% to >+1.5% for 5-year and 10-year TIPs. An inflation rate of 8.0% means that a 10-year nominal T-bond has a real yield of < -4.0%. Yes, inflation could average less than 4% over the next 10 years, but then TIP prices would rise also, and we already have a 1.5% real yield on them.

Pundits write about the markets as if they make sense. Last year, the valuation on stocks didn't make sense. Now? Gold and bitcoin have gone down despite accelerated inflation and negative real yields. It's all crazy, although the switch from QE to QT explains a lot. QT must account for a lot of the decline in all asset prices. As long as it continues, I think it must make a global recession inevitable. Et tu?
Code Talker Market Analysis profile picture
@The Social Scientist. Up until 2022, it made sense for me to be overweight stocks, even on margin. I made money that financial advisors told me was going to bite me [end of 2020]. It continued to pay off until Jan 2022.

Having taken a decent amount of money back in stock losses [more than I as a cheapskate would ever spend on my own, outside of hallmark/lifetime expenses], I decided what was working for me in 2021 wasn't working for me any more [selling cheap puts, getting assigned on occasion, and then selling calls on the assignment]. That market was too volatile, and I was making too many bad decisions.

Short answer: the market is doing something very new. One day, it will be a recognizable bull market again, and I'll know what to do with it. For now, I am going to cash.

Good luck.
Logan Kane profile picture
@The Social Scientist. The Feds plan to get inflation down is going to work in my opinion— nominal CPI is likely to decline again this month although core will be a problem. We’re technically already in recession but yet to see if hit the labor market. You’re not the only one who thinks the breakevens for TIPs are low, Ray Dalio thinks so as well.
The Social Scientist. profile picture
@Logan Kane I'm inclined to agree that inflation will decline significantly, but the facts often change, and my mind with them.
Regarding those tech stocks, you could go with an equal-weight SP500 ETF if you want to keep the overall theme while reducing outsized dependence on those mega-caps. I agree with your thoughts on the trend of the overall market. For now I have only nibbled a little at dividend-paying stocks since their purpose is different from a growth stock. A little lower and I will buy a bit more. Otherwise, T-bills that I hold until maturity or short-term CDs are a good place to stash money.
Chris Lau profile picture
I'm judiciously tracking SPY against TLT and small caps.

No position. Not buying yet.
m8 profile picture
how do I buy Treasuries (4% ? - lotta cash currently). Account at Vanguard. Do you have to spread out maturity or can I pick the exp. date? What can go wrong ?

Thirst 4 Yield profile picture
@m8 I purchased a 2 year treasury at yesterday's auction directly from the government, at treasurydirect.com.
Logan Kane profile picture
@m8 you should be able to buy through Vanguard! Watch the prices though to make sure they’re fair.
Fantastic article! Good advice!
I've been keeping some funds in SDS, SQQQ, DRV, UUP as the downtrend continues.
ckarabin profile picture
Market needs a rally here, even if it is a bear market rally. We only slightly breached the June lows which is a scam to get people to sell the bottom. Some kind of favorable news will hit now and take us up 100 S&P points now, then it's look out below again! But FAR, FAR too many bears out there right now to continue to go lower right away
@ckarabin looks like you were / are 100% spot on.
Why would PFFD be one of the places to park one´s money? They do poorly with expected higher rates.
I agree with Astute--great article! I think your forecasts seem pretty reasonable.
Great article!
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