Hey There Income Hunter,
Target (Ticker: TGT) stock is down more than 30% year-to-date.
Who’d a thunk it?
Not Target CEO Brian Corne, who said this …
“While we anticipated a post-stimulus slowdown in these categories and we expected the consumer to continue refocusing their spending away from goods and into services, we didn’t anticipate the magnitude of that shift.”
Members of my Power Income Trader program were ready for this because we knew that Fed and government policy had turned hawkish in Q4 2021 due to …
- A massive decline in government spending. Going from $2.8 trillion in 2021 to $700 – $800 billion in 2022 is like trying to quit crack cold turkey.
- Repeated rate hikes. Now you have the Fed talking about 14 rate hikes, including $1T of quantitative tightening, at the same time.
If Corne, the Target CEO, is worried, imagine how Fed chairman Jerome Powell must feel …
Earlier this week he said the consumer balance sheet was very strong.
That will be something to watch for in his next speech.
Today, we’ll take a look at sentiment and positioning to get an idea on how much more downside we can expect.
The Double-Barrel Government & Fed Shotgun Approach
Somehow it’s easy to forget just how much historic stimulus we saw over the past couple of years:
- $2.2T CARES Act, Q2 2020
- $0.9T Aid package, Q4 2020
- $1.9T American Rescue Plan, Q1 2021
- $1.0T Infrastructure, Q4 2021
- $4.0T Fed asset purchases 2021
- Total: $10 trillion
What did the Fed and government think would happen when they pulled the plug on the printing press?
The Fed was responsible for letting Americans believe it would always be there for them over the past 40-years.
We Have a Long Way to Go
The orange line below shows investors percentage of equity asset allocation, while the blue line is the consumer sentiment indicator.
That is one scary chart, showing that there are plenty of bears out there, yet most are still long.
The chart above is a great example of an anomaly or divergence from the historical norm. That is a valuable input for trading.
The low last week brought the forward price-to-earnings down to 17.6, but that is using the inflated bank earnings estimates, which are nonsense.
In 2018 the P/E bottomed at 14 and in 2020 it bottomed at 13.
Today, applying realistic earnings, the P/E is still 20+ …
So, based on “real numbers” I think the first S&P 500 low prior to hitting a lower low in September could be 3600 … but the September low could drop another 1,000 points to 2600, at a minimum.
Bring It Home
Expect the economic data to continue to be bad news for the economy.
Then at the June FOMC meeting Powell will be less hawkish, which could provide a relief rally for stocks and bonds while being negative for the dollar.
After that, we’ll chop around into August when we begin to see downgrades, defaults and bankruptcies. Then redemptions and forced selling will trigger a serious crash that will force the Fed to end the tightening.
This week was a dose of reality that can not be disputed, so it’s a great time to look ahead.
Remember, front-running the Fed is how we make the big money.
Live and Trade With Passion My Friend,
Griff