Huge Majority Of Investors Miss Big Opportunity
Could stocks bounce 17%?
You better believe they can.
In fact, they already have.
The S&P 500 jumped 17% from mid-June to mid-August.
Although they’ve given all those gains back and then some, a few catalysts are emerging for a major rally that could allow you to bank big gains in a few weeks.
Here’s the setup.
So Bad It's Good
It’s pretty bad out there.
Stocks have been driven down to multi-year lows.
The average, mutual-fund-holding, passive investor has been crushed especially hard.
This chart from All Star Charts
shows the rolling returns of investors is the worst in decades:
The chart shows an average loss of 15% in the last six months.
That’s as bad a decline in speed and depth experienced after the dot-com bubble imploded and the 2008 credit crisis.
The main driving force behind this latest sell-off hasn’t been economic deterioration.
That’s been slow and steady for months (a year?) now.
Instead it’s the realization that this time really is different.
This is an inflation-driven recession.
Which, fundamentally, is a supply and demand problem.
Today demand for goods and services is high because of recent money supply expansion and supply of those goods and services hasn’t kept up.
When that happens, prices must go up.
And they have.
It’s a big problem. But there are obvious and direct solutions on both supply and demand sides.
Policymakers have chosen to focus exclusively on the demand side though.
There haven’t been major tax cuts, deregulation efforts, or, most importantly, unleashing energy production.
Instead, the only solution is to let the Federal Reserve handle it all by constricting money supply to drive down demand for goods and services.
And the Fed is doing just that.
The main tool the Fed has is to increase interest rates to decrease demand.
This policy choice will have obvious and costly economic consequences.
You’re living them right now, you don’t need them explained.
But in the last few weeks it appears investors have realized where this single-pronged strategy to deal with inflation is going to lead.
And it isn’t a good place and inventors are finally waking up to it.
According to the regular investor sentiment survey from the American Association of Individual Investors (AAII)
, more than 60% of all investors in its survey are bearish.
That’s up from a month ago when the survey returned just over 50% of investors as being bearish.
It’s the highest level of bearishness in a year.
In the short-run this could be a major opportunity for investors reading this now.
The Drop Before The Pop
All of this seems pretty bad.
Frankly, it is bad.
No sugar-coating here.
But here’s the good side.
Investor sentiment is so bad that it can’t get much worse in the short run.
That’s the kind of position where stocks can run up hard and fast.
We already saw it happen this summer.
As mentioned above, the S&P 500 jumped 17% from the middle of June to the middle of August.
We’re not making any long-term predictions with the Fed committed to solving inflation by creating and deepening a recession, but from this point, stocks could bounce again from here.
If they do, you’re going to want to jump on it in a big way.
The news may be bad. But that could create a good opportunity for investors willing to set aside the fear and take what the market gives them.
As a Dynamic Wealth Research
reader, you’re more likely to be one of those kind of investors.