As The Bear Market Threat Looms, Here’s How To Respond…

In case you hadn’t heard, the S&P 500 has now lost ground for seven consecutive weeks. I’ve been in this business for 25 years and have only seen a losing streak like this one other time. It last happened back in 2001 when the market was unwinding the excesses of the dot-com boom.

The index has now declined nearly 18% from its January peak, flirting with the 20% pullback that would officially mark this a bear market.

Of course, the Nasdaq is already there, having tumbled nearly 25%. Hundreds of individual stocks have lost 50% or more of their market value in this meltdown.

And it’s not just the tech sector being punished. Even retail giant Wal-Mart (NYSE: WMT) skid from $148 to $119 per share last week after posting weak earnings and soft guidance. When Wal-Mart struggles, you know there are pervasive economic concerns.

Has the selloff run its course? Well, even the most brilliant minds on Wall Street can’t agree on that. Goldman Sachs just issued a report suggesting that the S&P may be approaching a bottom and could rebound 10% by year’s end to reach the 4,300 level. At the other end of the spectrum, Bank of America’s Chief Investment Strategist believes the S&P could potentially sink all the way below 3,000 if this downturn lines up with others over the past century.

Depending on the source, the average recession-driven bear selloff doesn’t let up for 289 days and erases about 35% of the market’s value. Speaking of the dreaded “R” word, we may already be in one. The first estimate of U.S. GDP (which is subject to revision) showed the economy shrunk by 1.4% last quarter.

And it sure doesn’t feel like we’ve made much headway since then. Read enough quarterly reports, and you see the same two culprits driving up operating costs, pinching margins, and biting into the bottom line. I’m talking about inflationary pressures and supply chain disruptions.

According to FactSet, 338 firms cited the phrase “supply chain” during first-quarter earnings call transcripts. That compares to a five-year average of 199 — and that’s only slightly down from the previous two quarters.

Source: FactSet

What’s more, when FactSet searched for the term “inflation” on earnings call transcripts (March 15 through May 12), the term was mentioned by 377 out of 445 companies.

Source: FactSet

Let’s go ahead and throw the dysfunctional labor market into the mix. I stopped by my favorite gas station last weekend for a bag of ice and found the door locked. There was a simple note: short-staffed, closing at 2 PM Friday and Saturday. This epidemic is getting worse. Just this yesterday, there was a report about severe staffing shortages plaguing the airline industry.

Closing Thoughts

I hate to be the bearer of bad news, but I think the bears may remain in control of the market over the next few weeks. Yet, here’s the upside… This deep and indiscriminate selloff has set the stage for a powerful rally once inflation has been corralled and we get more clarity from the Fed.

My premium Takeover Trader service was launched at such an inflection point and we made the most of the tailwind. We cashed out a return of 127% on XPO Logistics (NYSE: XPO), 141% on TripAdvisor (Nasdaq: TRIP), and 321% on Roku (Nasdaq: ROKU), among others – not to mention some options trades on those names, which magnified those gains even more.

As I’ve said before, you make most of your money in bear markets – you just don’t realize it until later. While we may not be out of the woods just yet, oversold bargains abound. In fact, none other than Warren Buffett is already making moves, with Berkshire Hathaway putting more than $50 billion to work last quarter.

So I intend to follow Warren Buffett’s lead, accumulating more shares of existing holdings and initiating new positions in others that are poised to bounce. You may want to consider doing the same.

Editor’s Note: With $66 billion in cash just sitting idle on the balance sheet, I think Amazon is about to pull off one of the biggest, most “shocking” deals we’ve ever seen…

If I’m right, not only will it will change the tech landscape forever – but it could also lead to massive profits for investors who get in before the rumor mill starts up. Go here now to get the details…