This Rally Is Likely More Fragile Than You Think

Another surge of optimism is underway in the markets…

As I’m sure you know by now, the latest inflation report came out last Thursday. And notably, the numbers came in a little bit better than the experts expected.

Specifically, the Consumer Price Index (“CPI”) experienced its smallest monthly increase since January. Unfortunately, the year-over-year increase in CPI was still more than 7%.

In other words, inflation remains really high. It’s still near its highest level since the 1980s.

Despite that, another bear market rally is playing out. Thanks to the latest surge of optimism, stocks are moving higher again. The S&P 500 Index is up about 6% in two days.

Some folks even believe the Federal Reserve will end its tightening cycle. Take a look…

Now, I’m not trying to be a curmudgeon. I’m glad people are feeling hopeful.

After all, we’ve endured a brutal year as investors. Even with the recent two-day rally, the S&P 500 is still down roughly 17% this year.

But the truth is, bursts of hope and optimism are normal during bear markets. And brief rallies like the one happening right now don’t mean the pain is completely over.

In fact, recent history shows us that these types of rallies can be incredibly fragile…

It’s amazing how quickly investors forget.

The slightest bit of good news can send stocks soaring during a downturn. And that can happen even when major economic headwinds remain.

With just a quick look at the S&P 500’s chart, you can tell that we’ve taken this road before. Heck, we’ve already seen it twice in the current downturn. Take a look…

Starting in early March, the market rallied nearly 11%. But unfortunately, overly optimistic investors got burned again when the market’s longer-term downturn resumed.

Next, a major rally started in June. The S&P 500 soared more than 17% from its bottom.

I think all of us hoped that would be the end of this bear market. But inflation persisted. And the Fed had little choice but to keep tightening its grip in response.

Today, the market is up about 11% from its latest bottom. And as I said, another huge outpouring of investor optimism is underway. Folks are getting excited again.

But that doesn’t change the big picture…

The war in Ukraine is still disrupting the oil and gas sector, as well as other global commodities. Serious inflation problems remain for much of the world. And Fortune 500 companies are in one of the deepest layoff cycles in decades.

Will things get better eventually? Of course.

We can still be realistic about what’s happening, though…

After the end of the housing crash, the market soared. It became one of the greatest asset booms in history.

Today, we’re facing a very different reality. The Fed is still battling high inflation. And interest rates are soaring in response.

That’s a major headwind for stocks. But importantly… that doesn’t mean we’ve run out of opportunities.

In fact, I believe 2023 could be the best year yet for a certain type of investor. It comes down to a specific type of investing vehicle.

In roughly 24 hours, I’ll explain all the details. I’d love for you to join us. It’s free to attend. And just for tuning in, you’ll get a free recommendation as well. Save your spot right here.

For now, remember that bear market rallies are normal. And it’s common to feel like “everything is getting better” right before the market turns lower yet again.

More simply… it ain’t over ’til it’s over.

Good investing,

Marc Chaikin

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