The S&P 500 officially entered into a bear market after a December 24th record decline of 2.7%.  Prior to December 24, 2018, there had never been a prior Christmas Eve decline of even 1%.  The decline of 15% for December puts the month on pace to become the worst ever when compared to all prior end of the year months.  The S&P 500’s decline from its all-time high will reach 30% after it declines by another 10% to a temporary bottom of just above 2000, possibly as soon as year-end or in early January 2019.  A US and global recession, has either already been underway or, just began due to December’s global market meltdown. December and year-to-date returns for Bull & Bear Tracker’s signals have increased to 44% and 132% respectively.        

The S&P 500 will be unable to hit even a temporary bottom until it declines to below 2100 for two reasons:

• The probability has increased considerably that the US will enter into a recession at the beginning of 2019, if it has not already entered into one.  The shock from the December crash will cause a decline in consumer spending. The December crash being the main topic of conversation at all Christmas day gatherings will definitely spook the consumer into retrenching.  It’s what happened after the October 2018 crash. See chart below. The risk is high that those consumers who hold stocks will decide to make getting out of the market their New Year’s resolution.

• The technical support for the index as depicted in the chart below is approximately 2053.40.  The horizontal line depicts that the S&P 500 had been under accumulation during the first half of 2016.     When a market crashes the tendency is to go to previous accumulation levels. Therefore, the decline should at least temporarily slow down as soon at the S&P 500 gets to below 2100.

The odds of a recession happening are very high.  The chart below depicts that the market has declined prior to the beginning of every recession over the past 90 years with only one exception.   The market went up before the 1945 recession only because World War II ended in the summer of 1945.

Given that a recession will likely occur after the nine-year secular Bull Market reached its peak in September of 2018, the S&P 500 is likely to decline by at least 60% from peak to trough.   This projection is based on what happened after prior mature secular bull markets reached their peaks in the past. The chart below which depicts the inflation adjusted coordinates for the 1982 secular bull which peaked in 2000 is a good example.  The S&P 500 declined by more than 60% and the index did not eclipse its 2000 peak until February 2015.

To maximize upside in this highly volatile market I recommend a subscription to the Bull & Bear Tracker.  Its Green and Red signals are utilized 24/7/365 to trade two triple leveraged S&P 500, ETFs including the SPXL (Direxion Daily S&P 500 Bull 3X ETF) and the SPXS (Direxion Daily S&P 500 Bear 3X ETF).   

The statistics table below depicts that the for the 11 months the Bull & Bear Tracker’s published and back tested signals generated a return of 88%.  With the 44% that the signals have produced during the first three weeks of December the year to date return increased to 132% which is equivalent to 11% per month.  For more about how the Bull & Bear Tracker operates and how its Red signal produces profits in a down market and Green signal in an up market read my article entitled “Bull & Bear Tracker Gorging on Market Volatility”.  

Subscriptions to the Bull & Bear Tracker are currently available for free.  An automated alert and trade execution system is currently under development.  Upon the development being completed subscribers will be able to have their trades automatically and seamlessly executed by an online broker.  To subscribe for a 90-day free trial click here.   

Now that the market has gone from a secular bull to a secular bear, I highly recommend spending time at www.BullsNBears.com.   The videos on the home page are must views.   The site is loaded with educational information about crashes, recessions and depressions.   The dozen research categories below are covered:

• Crashes
• Crypto Infrastructure
• Secular Bull & Bear Markets
• Tesla
• Markets & Economy
• Tariffs
• Negative Cash Flow Research
• FANGAM stocks
• Digital Economy
• Startups & Microcaps
• Non-Public Markets
• Digital Tax Impact

The University of Michigan Consumer sentiment survey which has been published since 1960 is a great barometer that can be utilized to predict recessions, economic recoveries and also secular bull and bear markets.   As depicted by the chart below the results from the Michigan survey has predicted all recessions and economic recoveries since it was originally published.

In April of 2018, Consumer Sentiment reached 100.0 for the first time since January of 2001.  In July 2018, the reading was 97.8, the third consecutive monthly decline.

Due to our discovery about consumer sentiment being a leading economic and market indicator BullsNBears.com will continue to monitor this economic metric very closely.  Its especially since the recent high could prove to be the peak for the current nine-year economic expansion that began in 2009.

The foundational support for the US stock market is now quicksand.  According to recently released data pertaining to shares and ETFs investor the churn rate for the markets has increased significantly.  More than $2.9 trillion worth of the shares of the S&P 500’s member companies in each of the past two quarters.  The last time the amount was this high was during the first half of 2008.

Emerging market shares and ETFs are also experiencing churn at levels not seen since 2008.

The elevated churn should be taken seriously.  It indicates that shares are being sold by long term investors and are being purchased by short term traders.

When long-term investors exit the stock market shares go from strong to weak hands.  After an investor has made the decision to take their long-term capital gains they generally do not get back in until share prices decline substantially and after a recession has begun.

A short-term trader is only interested in producing cash profits as soon as possible and could care less about waiting to take a capital gain.  Thus, as soon as they are ready to take a profit the buyers of their shares after the long-term investors have left the market are other short-term traders.  Because short term traders are extremely disciplined to utilize stop losses orders to protect them against substantial losses a stock market that is dependent short-term traders for stability has a quicksand foundation.  This is exactly what happened during the first eight months of 2008 before the market began to crash in September 2008. See also recent June 30, 2018, article “Global equity funds suffered their second largest outflows ever this week” which further supports that long term investors are exiting the markets.

A high reading for the “Main Street Meter”, a stock market gauge that was developed by institutional investor James Paulsen of the Leuthold Group is indicating that the stock market will go much lower.  Readings for the meter are calculated by dividing the consumer confidence reading by the unemployment rate.  A high reading indicates that consumers and investors are optimistic. This is certainly the case now due to unemployment being at 3.9% which is the lowest level since 2000.  Also, consumer sentiment is now at its highest levels since the 2008/2009 Crash and Great Recession.

The meter is a good measure for the markets.  A high reading comprised of low unemployment and a high level of consumer confidence indicates that that everyone has a job and a positive outlook.  A low reading indicates that a lot of people are out of work and a pessimistic outlook prevails. When the reading is high reading investors are less fearful and greedy.  When the reading is low investors are more fearful and less willing to take risk. Both of the readings coincide with market highs and lows respectively. The meter is a great contrary indicator to predict market peaks and troughs.  The chart below compares the S&P 500 with the meters actual and projected readings from 1962 through 2023.

• All of the online merchants are now liable to collect and pay sales taxes to more than 1,400 municipalities in the US.  The merchants will also have to monitor for the frequent changes that the municipalities make. There is not an off-the-shelf software to enable the merchants to manage this process themselves.  The only choice that a merchant will have to become compliant will be to move their online stores to a platform which can manage this for them such as Shopify (symbol:SHOP) which is the largest online merchant hosting company.  This will effectively put all of the independent hosting sites and programmers who work for them out of business.

• The tax will also negatively affect brick and mortar retailers who sell a product in a store in one state and then ship it to the customer’s state of residence.  This will reduce retail sales of especially luxury goods. Once again, since Wal-Mart does not sell luxury goods it will not be affected.

• Since the tax will reduce the demand to ship it will negatively impact the revenue and profits of the shippers.  Federal Express shares have declined by 6.2% versus Wal-Mart shares since the ruling.

The new tax will definitely slow down the digital and the brick and mortar economy.  It further supports the probability that the S&P 500 hit its all-time high for the secular bull which was born in 2009 in January of 2018.   See my February 6, 2018, Equities.com article “BULL DEAD, BEAR DOB 01/31/18: Expect Stock Market Decline of at Least 50%”.   The video below provides details about the secular bulls and bears since the 1800s in the US.   Since the minimum life span of a secular bear is 8 years its viewing is highly recommended.  

The US Supreme Court (SCOTUS) ruled today that the State of South Dakota can apply their brick and mortar sales taxes to those businesses domiciled outside of the state who sell their products and services online to South Dakota’s residents.  This is a significant negative development for the digital economy and for the NASDAQ which has a heavier weighting of online companies. After hitting its all time high along with the Dow and the S&P 500 earlier in the year the NASDAQ early this week hit an all-time new high.  The SCOTUS announcement will send the index back down to earth. The index has likely seen its high for the foreseeable future.

The SCOTUS event has not yet been digested by financial media because the $1.2 trillion digital represents only 6.5% of the US’s overall economy.  It will become more heavily discounted by investors since the NASDAQ and especially the FANG (Facebook, Amazon, Netflix and Google) stocks have been leading the market and keeping the S&P 500 propped up.   Below are the reasons why the new tax will negatively impact the digital economy.

• Millions of online merchants will have to upgrade their technology and software to collect sales taxes levied by states and even municipalities.  For example, New York State and New York City each levy 4% sales taxes.
• The prices that the consumers will pay in 45 of the 50 US states to purchase products and services online will increase by an average of 5%. This will slow the growth rate of the digital economy which very recently had been growing at three times the rate of the over-all economy.

The SCOTUS sales tax decision further increases the probability that the S&P 500 hit its all-time high earlier this year for the secular bull which was born in 2009.  See my February 6, 2018, Equities.com article “BULL DEAD, BEAR DOB 01/31/18: Expect Stock Market Decline of at Least 50%”.   The video below provides details about the secular bulls and bears since the 1800s in the US.   Since the minimum life span of a secular bear is 8 years its viewing is highly recommended.

For more information about secular bulls and bears is available at ProftFromTheCrash.com.  To insure access to all of my articles, reports and alerts covering the new bear market sign up for FREE alerts at ProfitFromTheCrash.com.

Bloomberg reported that the Federal Reserve Bank of Atlanta’s President Raphael Bostic who is also a member of the Federal Reserve’s Open Market Committee (FOMC) has become less optimistic about the U.S. economy.   This is due to concerns by the business community that U.S. trade barriers will disrupt growth and increase the risks for an economic downturn.

President Bostic’s comments from a speech that he gave in Savannah Georgia as reported by Bloomberg:

• “I began the year with a decided upside tilt to my risk profile for growth, reflecting business optimism following the passage of tax reform”.  
• “That optimism has almost completely faded among my contacts, replaced by concerns about trade policy and tariffs. Perceived uncertainty has risen markedly. While projects under way continue, the bar for new investment is currently quite high,”

Bostic said the current economy reflects a tight labor market and that inflation was near the Fed’s 2% goal.   The open market committee member’s comments further support my argument that the probability of a recession beginning before the major US stock market indices make a new all-time high has increased considerably.   

Full article entitled “Fed’s Bostic Says Business Optimism Is Fading While Trade Tensions Rise”, available at Bloomberg June 19, 2018.  

The Dow 30 industrials and S&P 500 declined significantly when the US markets opened this morning.  Stock market indices in Asia and Europe declined earlier today. The declines were from the anxiety which was caused due to the official start of the trade war between the US and China which began at the end of last week.  The economies of the two countries are the world’s largest.

The war officially began on June 15, 2018, when US President Trump announced that the US was moving forward with its instituting 25% tariffs on $50 billion of Chinese goods that are imported into the US.  China retaliated with $50 billion of tariffs on US’ soy, corn, wheat, cotton, rice, sorghum, beef, pork, poultry, fish, dairy products, nuts and vegetables. All of the US indices including the Dow Jones 30, S&P 500 and NASDAQ ended Friday lower.   For the week ended June 16, 2019, the Dow 30 index had its worst performance within the past 12 weeks.

There is a reason why the markets are now discounting the trade war instead of when Mr. Trump threatened to start it.  Many had believed that Mr. Trump was only using the tariffs as a bluff and a negotiating tactic.

Now that trade war has officially begun the markets discounting it has also begun.  The bottom line is that tariffs negatively impact share prices since they compress PE multiples.  It’s because tariffs constrict FREE trade and this reduces global economic activity. The charts below illustrate that the PE multiples declined and also that the market declined by 28.7% while the Bush steel tariffs were in effect.

The elimination of a tariff has the exactly opposite effect.  It expands free trade and the stock market’s PE multiples. However, there is not an example of this since there has not been a previous time in world history for what happened after tariffs were lifted.  Therefore, the best example is what happened in the late 1980s. Communism collapsed in eastern Europe after the Berlin Wall was knocked down and China transformed its economy to allow free trade. See white paper “China: Economic Transformation Before and After 1989” by Barry Naughton. This increased the number of consumers to purchase goods by over 1 billion.   The two FREE Trade events were the drivers of the expansion of PE multiples at approximately the mid-point of 1982 through 2000 secular bull market.   The chart below depicts that expansion of PE multiples from 14 to 34.

The 3 minute, 2 second video below is an interview of me.  The video is about the effects that tariffs have on PE multiples.

For those investors who do not want to take minimal risk and yet have the potential for their portfolios to grow I am recommending the deployment of a 90/10 Crash Protection Strategy.  For information on the strategy which is the only fail-safe strategy that one can utilize to protect their liquid assets from crashes, recessions and depressions view video below entitled “Profit From the Crash”.