by
Adam Taggart
Brian Pretti
by
Brian Pretti
by
Brian Pretti
Executive Summary
- New bear market + re-enter recession = 30-40% drop in stock prices
- What are the chart of the best technical indicators telling us?
- Confusion reigns during the transition from bull market to bear
- Why volatility will reign & capital protection should be prioritized
If you have not yet read Part 1: Has The Market Trend Shifted From Bull To Bear? available free to all readers, please click here to read it first.
It’s The Global Economy, Stupid!
I believe another key question for equity investors right now is whether the recent noticeable slowing in global economic trajectory ultimately results in recession. Why is this important? According to the playbook of historical experience, stock market corrections that occur in non-recessionary environments tend to be shorter and less violent than corrections that take place within the context of actual economic recession. Corrections in non-recessionary environments have been on average contained to the 10-20% range. Corrective stock price periods associated with recession have been worse, many associated with 30-40% price declines known as “bear market” environments.
We can see exactly this in the following graph. We are looking at the Dow Jones Global Index. This is a composite of the top 350 companies on planet Earth. If the fortunes of these companies do not represent and reflect the rhythm of the global economy, I do not know what does. The blue bars marked in the chart are the periods covering last two US recessions. US recessions that were accompanied by downturns in major developed economies globally. As I’ve stated many a time, economies globally are….
Why The Next Drop Will Likely Be 30-40%
PREVIEW by Brian PrettiExecutive Summary
- New bear market + re-enter recession = 30-40% drop in stock prices
- What are the chart of the best technical indicators telling us?
- Confusion reigns during the transition from bull market to bear
- Why volatility will reign & capital protection should be prioritized
If you have not yet read Part 1: Has The Market Trend Shifted From Bull To Bear? available free to all readers, please click here to read it first.
It’s The Global Economy, Stupid!
I believe another key question for equity investors right now is whether the recent noticeable slowing in global economic trajectory ultimately results in recession. Why is this important? According to the playbook of historical experience, stock market corrections that occur in non-recessionary environments tend to be shorter and less violent than corrections that take place within the context of actual economic recession. Corrections in non-recessionary environments have been on average contained to the 10-20% range. Corrective stock price periods associated with recession have been worse, many associated with 30-40% price declines known as “bear market” environments.
We can see exactly this in the following graph. We are looking at the Dow Jones Global Index. This is a composite of the top 350 companies on planet Earth. If the fortunes of these companies do not represent and reflect the rhythm of the global economy, I do not know what does. The blue bars marked in the chart are the periods covering last two US recessions. US recessions that were accompanied by downturns in major developed economies globally. As I’ve stated many a time, economies globally are….
by
Adam Taggart
by
Brian Pretti
by
Brian Pretti
Executive Summary
- Why the Fed may no be able to raise rates from here
- Will the Fed go to negative interest rates instead?
- Why the next recession will limit the Fed's options greatly
- Why it may well be too late for the Fed at this point to act
If you have not yet read Part 1: Has The Fed Already Lost? available free to all readers, please click here to read it first.
What If The Fed Isn't Actually Able To Raise Rates From Here?
Let’s start with a look at the history of the Federal Funds rate (the shortest maturity interest rate the Fed directly controls). Alongside the historical rhythm of the Funds rate are official US recession periods in the shaded blue bars.
Chart Source: St. Louis Federal Reserve
Of course there is one striking and completely consistent historical commonality in the behavior of the Funds rate over time. The Fed has lowered the Federal Funds rate in every recession since 1954 at least. There are no exceptions. You can see the punchline coming, can’t you? Just how does one lower interest rates from zero to stimulate a potential slowdown in the economy?
Of course in the banking system…
The Future Of Interest Rates
PREVIEW by Brian PrettiExecutive Summary
- Why the Fed may no be able to raise rates from here
- Will the Fed go to negative interest rates instead?
- Why the next recession will limit the Fed's options greatly
- Why it may well be too late for the Fed at this point to act
If you have not yet read Part 1: Has The Fed Already Lost? available free to all readers, please click here to read it first.
What If The Fed Isn't Actually Able To Raise Rates From Here?
Let’s start with a look at the history of the Federal Funds rate (the shortest maturity interest rate the Fed directly controls). Alongside the historical rhythm of the Funds rate are official US recession periods in the shaded blue bars.
Chart Source: St. Louis Federal Reserve
Of course there is one striking and completely consistent historical commonality in the behavior of the Funds rate over time. The Fed has lowered the Federal Funds rate in every recession since 1954 at least. There are no exceptions. You can see the punchline coming, can’t you? Just how does one lower interest rates from zero to stimulate a potential slowdown in the economy?
Of course in the banking system…
by
Adam Taggart
by
Adam Taggart
by
Brian Pretti
by
Brian Pretti
Executive Summary
- Will global capital continue to push US stocks higher, despite their stretched valuations?
- Global capital is becoming more cautious
- S&P outperforming as capital seeks the safety of "blue chip" companies
- Investing in the age of anomalies
If you have not yet read Part 1: Time To Toss The Playbook available free to all readers, please click here to read it first.
This leads us to equities and, again, this very important concept of being flexible in thinking and behavior. Historically, valuation metrics have been very important in stock investing. Not just levels of earnings and cash flow growth, but the “multiple” of earnings and cash flow growth investors have been willing to pay to own individual stocks. This has been expressed in valuation metrics such as price-to-earnings, price relative to book value, cash flow, etc. To the point, in the current market environment, common stock valuation metrics are stretched relative to historical context.
In the past we have looked at indicators like total stock market capitalization relative to GDP. The market capitalization of a stock is nothing more than its shares outstanding multiplied by its current price. The indicator essentially shows us the value of stock market assets relative to the real economy. Warren Buffet has called this his favorite stock market indicator.
The message is clear. By this valuation metric, only the…
Investing In The Age Of Anomalies
PREVIEW by Brian PrettiExecutive Summary
- Will global capital continue to push US stocks higher, despite their stretched valuations?
- Global capital is becoming more cautious
- S&P outperforming as capital seeks the safety of "blue chip" companies
- Investing in the age of anomalies
If you have not yet read Part 1: Time To Toss The Playbook available free to all readers, please click here to read it first.
This leads us to equities and, again, this very important concept of being flexible in thinking and behavior. Historically, valuation metrics have been very important in stock investing. Not just levels of earnings and cash flow growth, but the “multiple” of earnings and cash flow growth investors have been willing to pay to own individual stocks. This has been expressed in valuation metrics such as price-to-earnings, price relative to book value, cash flow, etc. To the point, in the current market environment, common stock valuation metrics are stretched relative to historical context.
In the past we have looked at indicators like total stock market capitalization relative to GDP. The market capitalization of a stock is nothing more than its shares outstanding multiplied by its current price. The indicator essentially shows us the value of stock market assets relative to the real economy. Warren Buffet has called this his favorite stock market indicator.
The message is clear. By this valuation metric, only the…
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