That’s the word on Wall Street.
It’s different this time.
Every discussion/debate I have with others who follow the market, it ends with them saying, “Well, maybe it is just different this time.”
That may sound familiar.
In fact, it’s so common that the phrase, “it’s different this time,” is widely considered the four most dangerous words in investing.
So, I have to wonder, is it actually different this time.
The stock market is battling a different beast.
Yes, the Federal Reserve is still hiking interest rates. This has always, 100% of the time, ended in a stock market crash.
It’s not common we see a crash while they are still hiking interest rates.
But the consumer had pent up demand from the pandemic. That extra spending is fueling inflation and keeping the gas flowing into the economy.
The market isn’t in a full-blown bear market or anything. We are well off the lows and haven’t hit a new all-time high.
You have to go back to 2015-2016 before there was this long of a period between highs, but it also only took just over a year to hit a new high.
Right now, the S&P 500 is still 18% below the highs.
Take a look:
Stocks have rallied, but this downtrend is holding steady for now.
And sitting that far from the highs, has sparked an intense debate.
Is the bottom in?
Is this time different?
When you are batting 100, I don’t like to bet against that. It’s the whole, don’t bet against the Fed logic.
The Fed is still working to crush the economy. The battle with inflation isn’t over and rates are holding higher. Markets don’t bottom when this is happening.
They bottom when the Fed is slashing interest rates furiously.
That ain’t going to happen tomorrow.
Or the next day.
It’s a key reason I remain bearish on this market at the moment.
It could be a moment like in August 2008 of the financial crisis. Stocks were down about 20% from the highs, it was about a year from the previous peak, and investors were debating whether it was different this time.
Turns out it wasn’t.
Stocks tumbled 48% over the next six months.
That’s the wash out moment I personally believe this market needs.
We haven’t come close to that yet.
It’s part of the emotions in a true bear market. Fear, uncertainty, doubt go mainstream. 401ks get dumped at the lows, panic sets in and the stock market becomes enemy number one.
It’s a wild ride, but the Fed is pushing to crash the economy and market still, despite the 20% drop in 2022.
As long as that is taking place, you can’t stay bullish.
Play both sides of this market and prepare for a potential washout in 2023.
Let’s get it!
Chad Shoop, CMT
Editor, Bank It or Tank It ELITE