One way to look at the market is that we are ready to grow, another way to look at it is that we are ready to fall.
Which is it?
To answer this, let’s look at the economy. March and April of 2021 (yes, last year) were some of the best quarterly growth rates for our economy. 2020 was horrible, so any growth in our economy for 2021 was better than 2020 almost by default.
However, 2021’s growth makes March and April 2022’s growth hard to compare.
There will be less growth in our economy than last year. Again, almost by default.
That is one checkmark against us. That puts us into LEAD 3 or LEAD 4 right away.
The LEAD (Lion’s Wealth Economic Activity and Development) stages are:
- LEAD 1: Growth in the economy and slowing or little inflation
- LEAD 2: Growth in the economy and growing inflation
- LEAD 3: Slowing in the economy and growing inflation
- LEAD 4: Slowing in the economy and slowing or little inflation
Then we have inflation. The Federal Reserve chairman Jay Powell and the entire Federal Reserve already has signified that they are going to raise interest rates to lower inflation.
They reiterated that again on the morning of Wednesday, March 2, 2022.
That means only one thing.
LEAD 4.
83% likelihood based upon the research of risk management firm Hedgeye Risk Management over the next 4 months.
The current state of the market is more problematic in the short-term than long-term.
Call this the “signal.” If it’s red, then at best the markets will go sideways. At worst, down.
If it’s green, then we have a better likelihood to grow over time in the markets.
Here’s the data as of Monday, February 28, 2022.
Short-Term |
Medium-Term |
Long-Term |
As a reminder:
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Short-term is 4 weeks or less
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Medium-term is 3+ months
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Long-term is 3 years or less
Even with the bounce in the market, the short-term still indicates problems.
The longer we stay in this problematic short-term stage, the greater the chances that we break the medium-term trend.
That long-term trend is the exact place we “bounced” at the end of February 2022.
To get back into the “All Clear” green, we should get above (and stay above) where we were at as of the middle of February 2022.
That will happen eventually but may not be in the next 3-4 months.
So sideways or down is very probable with the current stock market.
Green trends are starting to appear in another investable area, bonds.
So while the stock market may not be as good of a place to be in the next couple of months, bonds are showing life.
Up to now, it has treated you well to be slow to add bonds, but with the turning “signal” this will be a worth watching closely. This may help us wait out the stock market during this period of time.
With the political, financial, and diplomatic risks that exist, we feel that being prudent with risk management will outweigh the swings in the market.
Changes can occur at any moment, which means you should view your portfolio in light of your current risk appetite.
