Broad Market Outlook
One thing that always cracks me up, are the people who say they are waiting for a bear market to load up when the market is drifting to new highs. Only then, when presented with a bear market, change their narrative to "waiting until things feel safe again" as they repeat the cycle of sitting on the side lines doing nothing. Analysis by paralysis at its finest, or simply put, human nature doesn't change. We just find new things to fear.
Earlier this week Shake dropped a gem of a chart that compared the 2018 bear market to what we are currently seeing. If you were a member in 2018, try your hardest to remember what the fear was at that time. How hard is it to remember what drove the market to drop 20% after hitting new all time highs. Don't worry, I can't remember either.
The same will happen in 2 years after this bear market is over, you will have no clue what you were so fearful of today. From an active standpoint, our message has been clear, sit in cash, you are not punching a 9-5 clock here where you need to click buttons to show you are working hard. This is an amazing time to scan charts and find your favorite names to keep an eye on those sneaky buy backs in time.
Now comparing 2018's bear market to our current almost bear market, the only noticeable difference is that the measured move should push us further then the prior bear market.
2018 had a 20% drop where we had an actual bear market for 10 whole hours before reversing. Often buying on the way up after we enter bear markets yield great risk reward trades but in the moment seem like como kisi missions. After the fact with time they seem so blatantly obvious.
After Friday's action we are probably due for some type of short term bounce but overall I still feel we see lower prices in time. It has still been too easy and there really has not been any truly scary days.
Overall in the stock market, real estate, car market, watch market, shoe market and that dumpster fire of a crypto market, all have seen the easy trade end as the harder trade begins. Most who thought that no work, no effort plus money in the game equals easy profits. We are not in that camp, but we still need to put in the work to find the opportunities.
In a strong trending market, it may take a stock 6 months to increase by 20%, yet in a bear market, stocks can bounce 20% in 6 days, the only way you or I will find those are by scanning charts daily no matter how bad things look.
Right now the talk of the town is the FED raising rates, as they talk a big game with there last rate hike. My two sense is that was there main hand to curb inflation and that they wont continue at such an aggressive rate. If they continue to raise rates it will be much smaller as mortgage rates have already increased by 300% in a little over a year.
People were getting 30 year mortgages sub 3% a year ago (your boy locked in a rate of 3.1%) while rates today are north of 6%. To think that the Fed will raise another 75 basis points which will push mortgage rates even further towards levels that we have not seen in since the 90's seems unrealistic if there goal is a soft landing which is a fancy word for not crashing the market.
They went on the offense to address the elephant in the room to curb inflation.
But now as the overall easy trade in stocks, real estate, cars and everywhere else quietly cools off on there own, inflation will slowly pull back with time. Just as we can see the 10 year getting within a few basis points of a nearly decade high, we know this move is extended and just as fast as they rise, they fall even faster.
If you are looking to buy a home, I would recommend waiting till the winter as the 10 year should start to pull back and you should be able to find mortgage rates back in the high 3's to low 5's range vs the 6% plus area that they are at now.
Macro Rotation Outlook