After falling to 5,119 on Monday, the S&P 500 (SPY) made an impressive comeback by the close of trading on Thursday, closing at 5,319.

This raises an obvious question: Is the worst over?

Is this jump real?

I will address these and other important questions in the following article.

Market commentary

Even though I am primarily a fundamental investor, given the recent wild price moves, I think it is important to start with the technical picture.

Moving averages: 50 days (yellow) @ 5,445 > 100 days (orange) @ 5,311 > 200 days (red) @ 5,026

One could say that the market has reclaimed an important battleground, with Thursday’s closing price again above the 100-day moving average at 5,311 points.

However, a close above that level means very little. Even two would not prove that we are definitely back in the uptrend. Usually, it is three consecutive closes above that significantly increase the chances of a sustained uptrend.

The likelihood of this happening is largely related to the three main reasons that prompted investors to sell in the first place.

• Fears of recession are increasing
• Settlement of the Japanese carry trade
• Warren Buffett signals end of tech rally

The Japanese carry trade issue seems to be well and truly over for now. It is simply unbelievable how much damage has been done around the world in such a short period of time as everyone tried to find the exit at the same time. Unless there are unforeseen consequences in the form of bankruptcies of financial institutions, this may be the last time we hear about this issue.

As for the sell-off in tech stocks, it’s not just Warren Buffett who is pocketing profits. Investors have simply been playing a game of Jenga with the Magnificent 7 stocks. Valuations can only rise so far before they become unstable and lead to a long-overdue crash.

So the really most important of these three concerns is to make sure we don’t slide into a recession. Here’s the key passage from my last comment on Tuesday that puts this in perspective:

“Yes, the latest economic data has been weaker. Namely the ISM index for the manufacturing sector and the employment situation in the public sector last week. Neither of these points to a recession, but does point to a slowdown in the economy.

First, let us remember the real purpose of the Fed’s interest rate hikes.

Lower demand > Economic slowdown > Containment of high inflation

This was all part of the Fed’s game plan… it just took much longer than expected to come to fruition. This latest weak data is the final nail in the coffin of high inflation and further encourages the Fed to cut rates at the next meeting on September 18.^th.

The only question now is whether it will be a modest 25 basis point cut, or whether the cut will be increased to 50 basis points, which is now seen as a likely outcome given last week’s mass exodus from equities and the associated explosion in bonds.

Plain and simple, we must heed the tried and tested advice: “Don’t fight the Fed!”

The reason for this is that they are close to administering the medicine (rate cuts) needed to avert a recession and keep the stock market on an uptrend through 2025.”

While the Fed appears to be on track for a soft landing, it’s also unfortunately true that 12 of the last 15 rate-hiking cycles have ended in recession, so it’s not crazy to keep an eye on the state of the economy. Here are the key reports on the agenda between now and the next Fed meeting on September 18.^th:

8/13 PPI

8/14 Consumer Price Index

15.8. Unemployed & every Thursday thereafter

21.08.: Fed minutes

8/30 pieces

9/3 ISM Mfg

9/5 ISM services

9/6 Employment situation in the public sector

Fed meeting of September 18th

When people are unsettled, it doesn’t take much to drive them crazy again. That means that even if just one of these reports points to a greater likelihood of recession, it’s quite possible that stock prices could reach recent lows or even lower.

In addition, the outcome of the presidential election now appears uncertain, which normally leads to caution and declines in stock prices, as has been the case in the last three election cycles.

And now, historically, September is the worst month of the year for stocks.

Overall, I still believe we are in a long-term bull market, however, I think we will spend more time between now and the election seeing prices fall toward the 200-day moving average (currently 5,026).

Those who recognize that this weakness is temporary will see it as attractive.Buy the Dip“It really is an opportunity. It means buying the best stocks to get better performance over the long term.

My favorite stocks are presented in the next section…

What to do next?

Discover my current 11-stock portfolio, packed to the brim with the outperformance benefits of our exclusive POWR Ratings model. (Nearly 4x better than the S&P 500 since 1999).

In addition, we have created effective protection against impending downside risks with two unique ETFs.

All of these hand-picked tips are based on my 44 years of experience as an investor in bull markets, bear markets, and everything in between.

And currently, this portfolio is far superior to the market.

If you are curious and want to learn more and see all of these 13 recent trades, please click the link below to get started right away.

Steve Reitmeister’s trading plan and top 13 tips >

We wish you much investment success!

Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
CEO, StockNews.com and Publisher, Reitmeister Total Return

SPY shares were trading at $531.40 per share on Friday morning, up $0.75 (+0.14%). Year-to-date, SPY has gained 12.51%, while the benchmark S&P 500 index has risen 1.5% over the same period.

About the author: Steve Reitmeister

Steve is better known to the StockNews audience as “Reity.” In addition to being the company’s CEO, he shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, as well as links to his latest articles and stock recommendations. More…

Additional resources for the stocks in this article