{"id":20137,"date":"2022-09-28T07:30:52","date_gmt":"2022-09-28T11:30:52","guid":{"rendered":"https:\/\/www.jeffclarktrader.com\/?p=20137"},"modified":"2022-09-28T07:30:52","modified_gmt":"2022-09-28T11:30:52","slug":"more-portfolio-pain-ahead","status":"publish","type":"post","link":"https:\/\/jeffclarktrader.com\/market-minute\/more-portfolio-pain-ahead\/","title":{"rendered":"More Portfolio Pain Ahead"},"content":{"rendered":"

Last week, Fed Chairman Jerome Powell was blunt about getting inflation under control.<\/p>\n

Specifically, he said “I wish there were a painless way to do that. There isn’t.”<\/p>\n

The pain speaks to rising interest rates and their bludgeoning impact on the economy. It’s clear from the Fed’s own regional surveys of business conditions that the economy is struggling.<\/p>\n

The most recent example comes from a Fed report on manufacturing output that covers several southern states.<\/p>\n

Their activity index slipped to -17.2 in September from -12.9 in the prior month, with a negative value signaling contracting economic activity.<\/p>\n

That echoes the message from four other Fed districts, which all show negative readings as well. Those developments signal the start of the next phase in this bear market.<\/p>\n

And it’s one that could bring more pain to your portfolio…<\/p>\n

The Next Shoe is Dropping<\/h2>\n

The S&P 500 is down 23% on the year. But so far, that entire<\/em> decline has been driven by falling valuation ratios, like the price-to-earnings (P\/E) multiple<\/a>.<\/p>\n

Just take a look at the chart below from JPMorgan…<\/p>\n

\"Chart\"<\/div>\n

Source: J.P. Morgan; YTD through August 2022<\/em><\/p>\n

All the decline in the S&P 500 (green line) has been driven by a falling P\/E ratio – the blue line labeled as \u201cmultiple growth\u201d on the chart.<\/p>\n

Something else stands out in the chart, and it’s that earnings (grey line) have increased <\/em>to this point which has partially offset the S&P’s decline. Meaning, the plunge in stocks would be worse<\/em> had earnings not increased.<\/p>\n

But that’s exactly where the next “pain point” comes into play. Rather than contribute to the stock market’s return, earnings are about to become another drag on share prices.<\/p>\n\n\n\n
\n

Free Trading Resources<\/strong><\/p>\n

Have you checked out Jeff’s free trading resources on his website? It contains a selection of special reports, training videos, and a full trading glossary to help kickstart your trading career \u2013 at zero cost to you. Just click here<\/a> to check it out.<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

That’s because we’re on the brink of an earnings recession.<\/p>\n

The Fed’s aggressive rate hikes are having a negative impact on the economy as evidenced by those regional Fed surveys I mentioned earlier.<\/p>\n

You should also be concerned about the earnings outlook because of the Conference Board’s Leading Economic Index (LEI) that’s used to forecast future economic activity.<\/p>\n

Take a look…<\/p>\n

\"Chart\"<\/div>\n

The year-over-year (YoY) growth rate (blue line) fell into negative territory, which is another bad sign for corporate earnings looking ahead… And the stock market.<\/p>\n

That’s because the S&P 500 has historically realized its worst returns when the LEI is in this regime.<\/p>\n

In fact, when the LEI growth rate is below zero and falling, annualized returns for the S&P 500 are -11.2%.<\/p>\n

I know the news is scary and stock market volatility has quickly returned…<\/p>\n

Just in the last six weeks, stocks have dropped 14%, but the latest drop came on the heels of a 17% rally.<\/p>\n

That’s why options have become one of my preferred trading vehicles in bear markets.<\/p>\n

Not only do options allow me to clearly define my downside risk (because I can’t lose more than the premium paid), but put options give me the opportunity to profit from the downside.<\/p>\n

So tune in next week, when I’ll show you how I find the best plays to profit from falling stock prices.<\/p>\n

Best regards,<\/p>\n

Clint Brewer
Analyst, Market Minute<\/em><\/p>\n

<\/p>\n

Reader Mailbag<\/strong><\/h2>\n

How will you hedge your portfolio against the volatility ahead?<\/p>\n

Let us know your thoughts – and any questions you have – at feedback@jeffclarktrader.com<\/a>.<\/p>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

The next bear market phase is here\u2026<\/p>\n","protected":false},"author":49,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"ep_exclude_from_search":false,"service":"","footnotes":""},"categories":[1],"tags":[],"publication":[10],"person":[82],"newsletter-type":[],"ticker":[],"class_list":["post-20137","post","type-post","status-publish","format-standard","hentry","category-market-minute","publication-market-minute","person-clint-brewer"],"acf":[],"_links":{"self":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/20137","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/users\/49"}],"replies":[{"embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/comments?post=20137"}],"version-history":[{"count":0,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/20137\/revisions"}],"wp:attachment":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/media?parent=20137"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/categories?post=20137"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/tags?post=20137"},{"taxonomy":"publication","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/publication?post=20137"},{"taxonomy":"person","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/person?post=20137"},{"taxonomy":"newsletter-type","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/newsletter-type?post=20137"},{"taxonomy":"ticker","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/ticker?post=20137"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}