Friday, December 9, 2022

How do I make money on the stock market when the trend is bearish?

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Simply put, if the stock market is negative, it indicates that money is pouring out of it and into something else.

Take a look at these three steps…

  1. Recognize the broader historical context.
  2. Understand where large amounts of money are flowing out of and into.
  3. Choose the firms that will get the most benefits from the infusion of large amounts of cash.

Allow me to share this…

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As you can see, the S&P 500 travels through cycles of bull market to periods in which it remains “fat and flat,” then back to cycles of bull market, and so on and so forth.

And it should come as no surprise that, as of 2022, we will be undergoing significant structural changes.

Because of the pandemic, inflation and interest rates have continued to rise, which is important because when the macroeconomic backdrop shifts, so do the drivers of returns. This means that what worked in the previous cycle (2009 to 2020—the era of zero percent interest rates and endless quantitative easing) will no longer work in the current cycle, and vice versa.

With the cycle entering the “fat and flat” phase, the “smart money” is already aware that values are quite high…

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We can no longer depend on decreasing interest rates to propel stocks higher this cycle since interest rates are at all-time lows and must increase (in order to keep inflation under control)…

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And while we’re on the subject of inflation…

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So, where is the influx of large amounts of cash going to come from? Or, to put it another way, what is the most costly and does not perform well in an inflationary situation when interest rates must be raised? To put it another way, where has large amounts of cash poured into the last cycle?

See also  How to analyze stocks for long-term investment?

Duh, (tech)…

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So, where will the massive influx of wealth from the IT industry go? Real estate and commodities are two types of assets…

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I’ve already done the legwork for you; all you have to do now is figure out which firms are involved.

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