At the start of the year I wrote and post the article The Second Gilded Age within which I outlined my expectation for the stock market under this second Trump term. The reality is coming true. Trump was bold – perhaps even too bold for his own liking – and with that came the market’s reaction. The truth is, someone had to prick the bubble and Trump seems to have taken the role of ‘pricker’ head on.
Now, I haven’t posted in a while and that’s for good reason. I like to write about what I expect to happen rather than what is happening. With that in mind I had nothing really to write about as my predictions from the beginning of the year slowly but surely are playing out.
So why am I writing now. Well, I had a target for the S&P500 to hit $4,800 this year. Honestly, tt hit far sooner than I expected and that gave us a good buying opportunity for large caps. Now, it’s possible that $4,800 ends up being the low as Trump’s admin get desperate and pressure the Fed to re-ignite the printer. That would actually align with my belief that Trump’s team want to de-value the dollar to make exports more attractive. In any case, the best thing you can do right now is zoom out – a lot.
As I said, $4,800 was a good buying opportunity and a potential bottom.
Why?
It’s the breakout area from the previous highs and also has confluence with mid-support on this two decade old channel. There is however something striking about this channel. The bottom of the channel has only been tapped twice in that period:
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The bottom of the Financial Crisis of 2008
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The Covid Crash bottom.
These two events were the result of a systemic shock / black swan. The selling was – to an extent – forced rather than warranted and I think we’re experiencing something similar today. I must admit, I’m no longer a believer in a Great Depression style drop as I think the Fed – whether you like them or not – act as a siginificant backstop for that. However that doesn’t negate the possiblity of a drawn out bear market.
I do foresee a situation where the index and broader market trade sideways for several years like the 80’s. Nevertheless, by zooming out and seeing the high time frames present areas to buy strong companies at vast discounts.
$4,800 is a good buying opportunity. $3,800 is a great opportunity.
Beyond that, in the scenario where the index crsahes below $3,800, I don’t really think your portfolio will matter that much.
TL:DR
SPX at $4,800 = Good!
SPX at $3,800 = Great!
SPX below $3,800 = Good luck!!!
