It’s been a tough start to the year for investors…
Many once high-flying stocks are now trading at a fraction of their former values.
Stocks like Amazon, Netflix, Tesla, and Meta (Facebook) have collectively seen over a trillion dollars wiped off their market caps… and all within just a few months.
Now, weary investors are grappling with what strategy to use.
Today, I want to share how I’m approaching this market.
Plus, I will quickly update you on a key piece of economic data we spoke about last week…
How To Ride This Market
When the markets rally strongly – as they were from March 2020 to late 2021 – investors get comfortable with the status quo. They buy the dip and then hang on for the ride.
However, investors who stuck with this strategy in 2022 have gotten buried.
First, we had the massive selloff that began at the very start of the year. Although the market bounced through March, it soon sold off sharply again.
After bouncing off its May lows, the market is again fighting to find direction. This recent bounce (while initially promising) has already started to run out of momentum.
It’s the kind of move that can lure you back into the market just before it changes direction… quickly tearing a hole in your trading account.
But this type of action is expected when there’s a transition from either a bull or bear market.
While an initial move might look promising, it can quickly turn around and bite.
That’s why you need to sit on the sidelines and be patient.
Only when a good setup opens, should you consider entering a trade. Just as importantly, you must be ready to quickly take your profits off the table.
Many trades I completed this year through my options trading newsletter, The Opportunistic Trader, were closed out within days or even on the same day.
I know that when markets are this volatile, a profitable trade can quickly turn into a loser.
That’s why you must keep a close eye on the data…
Property Prices Continue To Soar
Last week, I wrote about some of the trends I’ve been keeping tabs on in the property market.
I also mentioned watching the S&P/Case-Shiller Home Price Year-over-Year (YoY) data for March, which came out on May 31.
I keep tabs on property prices because when they rise, homeowners and property investors are happy to spend money. This flows straight into the economy and pushes demand higher.
However, if these price rises flatten or fall, these same folks will quickly tighten their belts… especially when interest rates are on the rise.
And this takes demand out of the economy.
But as you can see in the graph below, the latest property prices show anything but a fall.
If anything, the latest uptrend looks like it’s accelerating.
As of March, house prices grew at a whopping 21.2% YoY. That’s another record high…
March S&P/Case-Shiller Home Price Year-over-Year
Source: TradingEconomics.com, Standard & Poors
After hitting 20% growth back in July 2021, house price growth (while still strong) gradually declined through November down to 18.3%.
Since then, each subsequent print has been higher – with a 1.4% jump in February. Clearly, there’s still a lot of heat in the property market.
And it’s going to take time to wash out…
Meaning, those hoping for a reprieve from interest rate rises – amidst an already struggling stock market – will be out of luck.
The next two 0.5% rate rises in June and July are locked in.
The only debate now is for how long the Fed will pause (if at all) after those rises before it increases rates again.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
Reader Mailbag
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