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I started plotting the comeback for my portfolio in early May, starting at the 100,000 foot level (global macro) and then down to the 10,000 foot level (markets and sectors). Finally, I mapped out my forecast for the next 4 quarters.To be absolutely clear...1. I am not a fortune-teller, however I closely monitor several macro indicators on a regular basis.2. I use this economic data to decide where to invest for the next 2-5 years and to identify short-term trade opportunities.3. I have been keeping this forecast up to date since it was first published (https://bit.ly/3OQjFzf) it is a living strategy that evolves as time passes and events unfold.4. No one can predict future black swan events, by their very nature, and these could upend the best laid plans.Quarterly roadmapOver the past several weeks, we have received new Fed guidance on their monetary policy, updated GDP forecasts, multiple survey results (consumer, industrial, retailers, homebuilders etc.), unemployment reports, labor information, inflation data and company guidance.The roadmap table in the link below (click or download or print to see in larger format) reflects these new pieces of information with a primary focus on US markets. I am not trying to predict whether we will have a recession or if the Fed is behind the curve or the degree of any impending economic slowdown.https://bit.ly/3OxPhd9The only question that I am focused on is…When I should be making buys and sells in my comeback portfolio?Some key observations (highlighted above) and my best guestimates:1. I expect growth stocks to likely start bottoming in late Q3. Here's why...first off, we have not received dependable forward guidance from many of these companies. I heard a lot of hemming and hawing on the last round of earnings calls. Some of our favorite companies have secular tailwinds behind their backs and customers are still buying. However, any talk about a product being "mission critical" needs to be taken with a grain of salt. If your customers are retailers, banks, small businesses, home builders, crypto exchanges (of course), social media platforms, content streamers, news organizations etc, they are all hurting. Their CFOs are likely considering budget cuts and technology projects are a huge target.I believe that we will receive more concrete guidance from growth stocks in the Q2 earnings reports. This will lead to heightened market volatility in July/August...some companies will be punished, the better ones will be rewarded. We will have days when investors get more nervous and sell out. That’s when I want to buy my stock picks.2. Broader macro conditions could start improving in late Q4/early Q1. Did someone say Santa Claus rally? Markets are predicting a pause in interest rate hikes in mid 2023 and they start pricing this in about 6-9 months prior. That's why I am more optimistic about a year-end/new year rally.3. Corporate share buybacks will continue to stay strong throughout this timeframe, providing critical price support for some stocks.4. Institutional buying will start ramping up in Q3 as per my forecast in #1 above. We started getting some upgrades this week such as AMD, NVDA and SNOW. Even ZM is getting some attention!5. Consumer sentiment will stay depressed through the next 2-3 quarters. It might feel like a dark time for many people with higher food prices, more layoffs, lower home values, increased political rancor and continued local flashes of COVID. As inflation continues to roll over and we get through the Winter, people will start feeling better about their future, leading into 2023.6. Global markets are still a bit of a question mark. The fortunes of Europe, Asia (incl. China) and Latin America are closely tied to what happens in Ukraine, the movements in the US$, commodity prices and local governments (military actions, economic policies, elections etc.). Maybe things will get clearer in a few months…we are not there yet.This exercise brings together the science of financial data and the art of investing forecasting. All or some of these events might never come to fruition. However, I am not willing to sit on my hands waiting for the market to give me lagging signals. I want to be able to react quickly as things play out and having such a timetable with actionable choices is my preferred approach.Beachman (beachman.substack.com)
No one knows if there will be a recession and if there is how bad it will be and how long it will last. Your guess is as good as anyone elses.Talking heads seem to think the key is when the feds decide interest rates are high enough or too high and begin to cut rates. Raising rates again in July and maybe this fall seems likely.After that much depends on what happens with inflation numbers.Talking heads think inflation may already have peaked. Gas prices are down a bit. Housing sales seem to be reacting to higher interest rates.The ecenomy seems to be slowing. But how much of that is response to rising costs and higher interest rates. And how much of that is wait and see anticipating more fed actions.Yes, one day strong businesses will recover. When remains mostly a guess. Too much unknown.
"Experts" also say that another signal that the cycle is rolling over is rising unemployment.The reasoning goes something like:"As mainstreet realizes that inflation is real, the Fed did indeed raise interest rates, which is causing increased costs, lower margins, etc... then mainstreet will fire some employees." Me? IDK, but Rising Unemployment is on my list of things for which to watch.👽ralph
One factor we need to consider (many hedge fund managers do) is the landscape of our elected officials. I do not want to make this a political dog fight; that is clearly not my intention. The history of midterm elections have suggested a bounce in the market after they happen. If after the election, we get a bounce, this could be a catalyst for a recovery which suggests a bottom in Q3 or Q4 of 2022. 1Q22 GDP came in at -1.6% final; 2Q22 GDP guestimates are near zero or lower which suggests an official recession is underway which would likely cause the FED to pause on the rates; maybe not so on QT. On the other hand, 3Q22 results for our SaaS companies may just hiccup which would send the market into a serious further correction and cancel the effect of the midterm election factor. The hiccup suggestion is as a result of many CC CFO's clearing their throats when asked about guidance. We'll have to wait and see, and so I keep telling myself that the US stock market has never NOT recovered from a depression, recession or a correction.FP
The sell-off has been remarkably broad, with every sector except energy down this year.https://www.nytimes.com/2022/06/30/business/stock-market-wor...
When will markets bottom? We'll find out eventually. During the bull run I wondered when the top would happen. Just as one can't time a top, one can't time a bottom except in hindsight. I get most of my income trading covered calls. From December through May I cut back because I was having too many losses. During those six months I only generated enough cash to cover 50% of my ordinary expenses (the rest was paid from my reserve fund). In June the situation changed and I generated cash to cover 140% of ordinary expenses.Call options are a lot more volatile than the underlying shares. Volatility lets one trade the options vigorously, one does not have to wait until expiration. Four round trips on ARKK and two round trips on RIVN during June generated over 9% of the value of the underlying shares. That's HUGE!Denny Schlesinger
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