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The Stock Market Is Simply Drifting Slowly Down In A Recession – Mike Swanson

By
Michael Swanson
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Federal Reserve data shows that the US economy is now in a recession. I know that people like Cathie Wood were saying that wouldn’t happen in the predictions they made a year ago, but it’s here. The official definition of a recession is two quarters in a row in which GDP growth is negative. Well, first quarter GDP posted a negative print and now the Atlanta Federal Reserve data is projecting that this current quarter may show over 2% negative growth.

Inflation is devastating for real economic growth and is putting millions behind the eight ball, in a situation where they think they cannot get ahead.

Many stock market bulls like Cathie Wood just a few months ago were claiming that the stock market decline in the first quarter would make the Federal Reserve stop raising rates. They claimed that they would ignore inflation and give stock market investors and gamblers a break like they did in 2018 and 2016.

The problem is high inflation hurts the real economy more than simple stock market declines do and now consumer spending has completely stalled out. It seems that the prices have gone up so much that people have been forced to buy less.

This inflation won’t go back down to 2% until the Fed raises rates higher than the inflation rate, but the high rates of inflation will come down a little before this year is over.

But there is no sign that the stock market bear market is over.

We have another round of earnings reports from companies this month, and when the reports come out look for companies to downgrade their earnings outlooks for the rest of the year.

Now to give you an idea of what is happening now in the financial markets take a look at the price of Bitcoin.

Bitcoin is trading way below its 150 and 200-day moving averages and those moving averages are acting as resistance in a classic stage four bear market. The bear market as far as price declines have gone has played out with two fast and steep leg downs this year that were preceded by two periods of sideways drifting action and now it seems to be going through a third such period now.

It’s a slow dull bear market with short-lived moments of price drops, like a stair step leg down.

Just about everyone who bought Bitcoin last year and this year is now losing money, but those still in are holding and hoping and listening to crypto gurus telling them to just HODL on and feeding them predictions for huge gains one day, that will probably never come for crypto.

Bitcoin is now basically dead money, because this year has proven that all of the claims made by the crypto gurus about it were false and the price volatility, shutdowns of various crypto exchanges, and scams exposed demonstrate that it cannot function as a safe haven. Crypto gurus who continue to promote it have no conscience.

The problem for everyone else, though, is that the stock market also is trading now in what is essentially a similar slow motion bear market, as you can see with this chart of the S&P500.

It looks to me like the stock market is likely to trade sideways a bit here for a few weeks and then drop again.

Maybe the S&P 500 can drift between 3700 and 3900 into the next Fed meeting at the end of July.

Since 2009 there have been multiple corrections in the stock market, with most of them just lasting 2-3 months.

This one, though, has been going on now for over six months and has shown no sign of ending.

The VIX in fact has gone down in the past two weeks!

The VIX action is important, because typical stock market corrections tend to end when the VIX “fear index” gets up near 40.

The way it is trading shows us that this slow motion bear market is still going on with no sign of a real bottom.

Sure, it can go up Tuesday or this week, but the bear cycle is what I’m looking at and it isn’t likely to end this month or next month either.

It’s best to be patient about buying things for now and to use rallies and up days to get out of funds and stocks that are lagging the market as they tend to fall harder than the market when it has declines and then they fail to go up to make back their losses when the market does rally. That’s been the story of things such as the Cathie Wood ARKK ETF and Bitcoin all year and they are going to continue to act as millstones in people’s portfolios, making people losers relative to the performance of the S&P 500 that are heavily invested in them.

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-Mike

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