by Jason Bodner

February 8, 2022

Since 2022’s first days, stocks and crypto have suddenly turned nasty. Both got pummeled.

Everyone’s question is: When will the stock sell-off stop? 

That begs another question: When will the bull market resume?

I’ll provide my best answers here.

When markets sag like this, it’s easy to think the gloom is permanent. Thoughts arrive like these:

  • The current debt load is insurmountable.
  • The Fed is finally in over its head.
  • This time it’s different.

The news piles on top of our inner negativity, because fear sells. The negative sentiment spirals. But I’m here to offer a bullish counterpoint – my answer on what’s next and when the stock sell-off will stop.

I love great comebacks. Pro sports are loaded with them. Take Kurt Warner, a seemingly promising quarterback from a small college in Iowa, but he was cut from the NFL in 1994. He eventually got a job at a grocery store. Four years later, he guided the St. Louis Rams to their only Super Bowl win, setting several league records, and winning both the regular season and Super Bowl MVP. He is now worth an estimated $30 million. He told his story in a recent motion picture release, “American Underdog.”

Kurt Warner

You never know what might cause a comeback. A century ago, Ecuador was in a recession, but a candy maker named Russell Stover trade-marked an ice cream sandwich called the “Eskimo Pie” on January 24, 1922. At a dime a bar, it quickly became a fad, selling a million a day by summer. That spiked the price of cocoa by 50%, which single-handedly lifted Ecuador out of a depression. I love surprise comebacks!

Maybe we’ll see another miracle comeback in the stock market, but when could it possibly start?

Last week, I showed MAPsignals.com data that indicates a possible stock market bottom this week, on Friday, February 11th. That’s because this updated study uses the average trough date of 20.4 calendar days after the severe selling starts – a figure based on all of the historical sell-offs, starting in 1990.

MAP Signals Table

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

In fairness, the biggest recent sell day (January 21, 2022) was only 4.2 times the 50-day average, only about half as severe as the average mega-selling examples above, but it’s still intense selling, so we’ll take it as a guide in giving us an expected February 11 trough. That date is curious because on February 10th the Consumer Price Index will come out. The number will likely be horrible, due in part to January’s energy price spike. Natural Gas, Heating Oil, Crude Oil, and Gasoline all rose double digits in January.

If the inflation news rocks equity markets, we might possibly bottom on or around this Friday, my data-driven prediction date. But no matter the bottom date, notice above what happened 3 to 12 months later: a comeback! 100% of all 29 instances showed big gains, averaging +21.3% 12-months later.

Last week, I laid out my theory on what is really happening. Here’s a short synopsis:

Going into 2022, the Fed felt like their hands were tied. They had flooded the economy with easy money for a long time. After rates were at or near zero during the 2008-09 financial crisis – and nearly the entire Obama presidency (2009-16) – rates began rising again (2016-2019), and then COVID hit, blowing the easy money gates wide open once again, pushing short-term rates down to near-zero all over again.

FRED Chart JB

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

For all of 2020, we were told to stay home to avoid the virus. Businesses were shut down. Labor markets were crunched overnight. Yet new waves of government aid – stimulus checks, EIDL, PPP and bond purchases – were generous and constant, rescuing our fragile economy. In 2021, with loads of new money in the system, prices started rising, as the lockdown-caused labor freezes shortened supply.

The old inflation formula revived: “Mucho dinero chasing nada supply = wicked inflation.”

Goldman Sachs now expects five to seven rate hikes this year. JP MorganChase CEO Jamie Dimon expects wicked volatility, saying “if we’re lucky” the Frf could engineer a soft-landing. So, the FED’s only options to battle hyperinflation would be aggressive rate hikes and bond-purchase tapering, right?

Wrong.

Do not forget that two years of easy money created $6 trillion in new federal debts, expanding the federal debt to a mind-twisting $30 trillion. That means each 0.25% rate increase equates to $75 billion in added interest costs. When you talk SIX rate increases in a year, that’s $450 billion in added interest expenses.

The Fed quickly realized that “talking” is their best weapon. The real Fed playbook was inked long ago. In December 1996, Fed Chair Alan Greenspan said two words in passing, “irrational exuberance,” and global stocks immediately tanked. In 2013, Fed Chair Ben Bernanke merely hinted at possible tightening, and he caused a “taper tantrum.” Bonds cratered and growth stocks tanked in short order.

I think the Fed once again used well-chosen words to cause this correction – to avoid having to use a too-aggressive policy to fight inflation. Using aggressive tightening language alone was enough to cool the froth. By threatening faster-than-expected tightening (the Bernanke playbook), stocks and crypto sank intentionally. Growth stocks were particularly mauled because higher rates and less money supply means lower profit margins. Crypto fell by as much as 50% from its high before recovering some last Friday.

Speculators are the main victims. We know that because Robinhood saw a huge influx of $600 and $1,200 deposits, matching the stimulus checks. Some levered-up to buy meme stocks like GameStop (GME), AMC, and crypto. Moneymaking looked easy, but it was really due to easy money lifting assets.

Tightening threats by the Fed halted rises in both stocks and crypto. Levered traders got smoked, many getting margin calls. Long-term (401k) investors also suffered, short-term, but long-term investors can ignore short-term swings. Dollar-cost averaging means you can buy more shares at lower prices now. And many of those who are close to retirement have switched out of stocks into bonds for an income focus.

I think the Fed knows what it is doing and knows that markets will recover. The net effect of this short-term washout is that when brokerage accounts sag, people tend to reduce unnecessarily spending. That helps to bring inflation down and put a cap on frothy asset prices. The Fed hasn’t even raised rates once, but money supply is tightening while asset prices are falling. Isn’t this a “cheap” way to fight inflation?

Navellier & Associates does not own GameStop (GME), or AMC, in managed accounts. Jason Bodner does not own GameStop (GME), or AMC, personally.

Imagine This – a Positive President! (It Could Happen)

Picture this: In two to three months, come Spring, President Biden will come on national television and ceremonially rip his face mask off and maybe even smile (for once) and say, “America, we beat COVID together. There’s no more pandemic. Now let’s get back to work to rebuild America!”  He will also urge everyone to get vaccinated and get all their booster shots, but he will focus on “let’s get back to work.”

That’s the positive message everyone is waiting for. People will cheer. Biden’s dismal approval ratings will lift, overnight. So will stocks. That announcement will spark labor. People at home with no more government or speculative trading income will get jobs. Labor will rise, as will supply. Prices will fall.

Theoretically, even then, two months from now, the Fed may have raised rates only once, or not at all.

In the meantime, Goldman and JP Morgan are effectively working as agents of the Fed, spreading bearish money policy predictions. I’ll remind you once again: JP Morgan has bailed out the government before, and Goldman alumnus worked on TARP. Those two have been in bed with government often in the past.

Then, in Q3, we may see labor growth and economic health occurring without the Fed’s constant talk or intervention, and the market will realize that the Fed is only going to raise rates three times, not seven.

By then, growth stocks that were pounded into oblivion in January will start rising. Why? Because investors will realize they were over-punished in Q1. By year’s end, the soft-landing that Dimon said would be “lucky” is all but assured – by the Fed’s tough-talk and rhetoric, more than actual tightening.

If what I am envisioning here becomes anything close to reality, this means growth is on sale right now. When no one has a reason to own something, it’s a great time to add it. Our 32 years of data proves that growth stocks are a great wealth builder. To date, the Fed has already removed the froth in the form of:

  • Too much money
  • High priced speculative assets
  • High growth multiples
  • Leverage

The Fed will eventually raise rates, but it will be far less punitive than I think is priced in right now. We should see the pay-off throughout 2022, since the market is doing the Fed’s heavy lifting for them.

Here’s a quarter-by-quarter summary of what I see ahead in 2022:

  • Q1: The Fed’s tough-talk tanks assets
  • Q2: Markets stabilize because “we defeated COVID”
  • Q3: Labor booms, tight-supplies ease, and more normal economic activity resumes
  • Q4: Stocks finish strong, led by a growth resurgence.
  • Summary: The Fed reduces bond purchases and raises rates three times, to 0.75%-1.00%

That’s the playbook I see for when the stock sell-off stops and when recovery begins. The “soft-landing” that everyone is saying is impossible is unfolding right now, in front of our very eyes.

I may be crazy, but if I’m right, this is a “mass deception” that is also an opportunity. That may sound crazy, but as Marina Tsvetaeva said: “A deception that elevates us is dearer than a host of low truths.”

All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

About The Author

Jason Bodner
MARKETMAIL EDITOR FOR SECTOR SPOTLIGHT

Jason Bodner writes Sector Spotlight in the weekly Marketmail publication and has authored several white papers for the company. He is also Co-Founder of Macro Analytics for Professionals which produces proprietary equity accumulation/distribution research for its clients. Previously, Mr. Bodner served as Director of European Equity Derivatives for Cantor Fitzgerald Europe in London, then moved to the role of Head of Equity Derivatives North America for the same company in New York. He also served as S.V.P. Equity Derivatives for Jefferies, LLC. He received a B.S. in business administration in 1996, with honors, from Skidmore College as a member of the Periclean Honors Society. All content of “Sector Spotlight” represents the opinion of Jason Bodner

Important Disclosures:

Jason Bodner is a co-founder and co-owner of Mapsignals. Mr. Bodner is an independent contractor who is occasionally hired by Navellier & Associates to write an article and or provide opinions for possible use in articles that appear in Navellier & Associates weekly Market Mail. Mr. Bodner is not employed or affiliated with Louis Navellier, Navellier & Associates, Inc., or any other Navellier owned entity. The opinions and statements made here are those of Mr. Bodner and not necessarily those of any other persons or entities. This is not an endorsement, or solicitation or testimonial or investment advice regarding the BMI Index or any statements or recommendations or analysis in the article or the BMI Index or Mapsignals or its products or strategies.

Although information in these reports has been obtained from and is based upon sources that Navellier believes to be reliable, Navellier does not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute Navellier’s judgment as of the date the report was created and are subject to change without notice. These reports are for informational purposes only and are not a solicitation for the purchase or sale of a security. Any decision to purchase securities mentioned in these reports must take into account existing public information on such securities or any registered prospectus.To the extent permitted by law, neither Navellier & Associates, Inc., nor any of its affiliates, agents, or service providers assumes any liability or responsibility nor owes any duty of care for any consequences of any person acting or refraining to act in reliance on the information contained in this communication or for any decision based on it.

Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any securities recommendations made by Navellier. in the future will be profitable or equal the performance of securities made in this report. Dividend payments are not guaranteed. The amount of a dividend payment, if any, can vary over time and issuers may reduce dividends paid on securities in the event of a recession or adverse event affecting a specific industry or issuer.

None of the stock information, data, and company information presented herein constitutes a recommendation by Navellier or a solicitation to buy or sell any securities. Any specific securities identified and described do not represent all of the securities purchased, sold, or recommended for advisory clients. The holdings identified do not represent all of the securities purchased, sold, or recommended for advisory clients and the reader should not assume that investments in the securities identified and discussed were or will be profitable.

Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. Individual stocks presented may not be suitable for every investor. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. Investment in fixed income securities has the potential for the investment return and principal value of an investment to fluctuate so that an investor’s holdings, when redeemed, may be worth less than their original cost.

One cannot invest directly in an index. Index is unmanaged and index performance does not reflect deduction of fees, expenses, or taxes. Presentation of Index data does not reflect a belief by Navellier that any stock index constitutes an investment alternative to any Navellier equity strategy or is necessarily comparable to such strategies. Among the most important differences between the Indices and Navellier strategies are that the Navellier equity strategies may (1) incur material management fees, (2) concentrate its investments in relatively few stocks, industries, or sectors, (3) have significantly greater trading activity and related costs, and (4) be significantly more or less volatile than the Indices.

ETF Risk: We may invest in exchange traded funds (“ETFs”) and some of our investment strategies are generally fully invested in ETFs. Like traditional mutual funds, ETFs charge asset-based fees, but they generally do not charge initial sales charges or redemption fees and investors typically pay only customary brokerage fees to buy and sell ETF shares. The fees and costs charged by ETFs held in client accounts will not be deducted from the compensation the client pays Navellier. ETF prices can fluctuate up or down, and a client account could lose money investing in an ETF if the prices of the securities owned by the ETF go down. ETFs are subject to additional risks:

  • ETF shares may trade above or below their net asset value;
  • An active trading market for an ETF’s shares may not develop or be maintained;
  • The value of an ETF may be more volatile than the underlying portfolio of securities the ETF is designed to track;
  • The cost of owning shares of the ETF may exceed those a client would incur by directly investing in the underlying securities; and
  • Trading of an ETF’s shares may be halted if the listing exchange’s officials deem it appropriate, the shares are delisted from the exchange, or the activation of market-wide “circuit breakers” (which are tied to large decreases in stock prices) halts stock trading generally.

Grader Disclosures: Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested. The sample portfolio and any accompanying charts are for informational purposes only and are not to be construed as a solicitation to buy or sell any financial instrument and should not be relied upon as the sole factor in an investment making decision. As a matter of normal and important disclosures to you, as a potential investor, please consider the following: The performance presented is not based on any actual securities trading, portfolio, or accounts, and the reported performance of the A, B, C, D, and F portfolios (collectively the “model portfolios”) should be considered mere “paper” or pro forma performance results based on Navellier’s research.

Investors evaluating any of Navellier & Associates, Inc.’s, (or its affiliates’) Investment Products must not use any information presented here, including the performance figures of the model portfolios, in their evaluation of any Navellier Investment Products. Navellier Investment Products include the firm’s mutual funds and managed accounts. The model portfolios, charts, and other information presented do not represent actual funded trades and are not actual funded portfolios. There are material differences between Navellier Investment Products’ portfolios and the model portfolios, research, and performance figures presented here. The model portfolios and the research results (1) may contain stocks or ETFs that are illiquid and difficult to trade; (2) may contain stock or ETF holdings materially different from actual funded Navellier Investment Product portfolios; (3) include the reinvestment of all dividends and other earnings, estimated trading costs, commissions, or management fees; and, (4) may not reflect prices obtained in an actual funded Navellier Investment Product portfolio. For these and other reasons, the reported performances of model portfolios do not reflect the performance results of Navellier’s actually funded and traded Investment Products. In most cases, Navellier’s Investment Products have materially lower performance results than the performances of the model portfolios presented.

This report contains statements that are, or may be considered to be, forward-looking statements. All statements that are not historical facts, including statements about our beliefs or expectations, are “forward-looking statements” within the meaning of The U.S. Private Securities Litigation Reform Act of 1995. These statements may be identified by such forward-looking terminology as “expect,” “estimate,” “plan,” “intend,” “believe,” “anticipate,” “may,” “will,” “should,” “could,” “continue,” “project,” or similar statements or variations of such terms. Our forward-looking statements are based on a series of expectations, assumptions, and projections, are not guarantees of future results or performance, and involve substantial risks and uncertainty as described in Form ADV Part 2A of our filing with the Securities and Exchange Commission (SEC), which is available at www.adviserinfo.sec.gov or by requesting a copy by emailing info@navellier.com. All of our forward-looking statements are as of the date of this report only. We can give no assurance that such expectations or forward-looking statements will prove to be correct. Actual results may differ materially. You are urged to carefully consider all such factors.

FEDERAL TAX ADVICE DISCLAIMER: As required by U.S. Treasury Regulations, you are informed that, to the extent this presentation includes any federal tax advice, the presentation is not written by Navellier to be used, and cannot be used, for the purpose of avoiding federal tax penalties. Navellier does not advise on any income tax requirements or issues. Use of any information presented by Navellier is for general information only and does not represent tax advice either express or implied. You are encouraged to seek professional tax advice for income tax questions and assistance.

IMPORTANT NEWSLETTER DISCLOSURE:The hypothetical performance results for investment newsletters that are authored or edited by Louis Navellier, including Louis Navellier’s Growth Investor, Louis Navellier’s Breakthrough Stocks, Louis Navellier’s Accelerated Profits, and Louis Navellier’s Platinum Club, are not based on any actual securities trading, portfolio, or accounts, and the newsletters’ reported hypothetical performances should be considered mere “paper” or proforma hypothetical performance results and are not actual performance of real world trades.  Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. There are material differences between Navellier Investment Products’ portfolios and the InvestorPlace Media, LLC newsletter portfolios authored by Louis Navellier. The InvestorPlace Media, LLC newsletters contain hypothetical performance that do not include transaction costs, advisory fees, or other fees a client might incur if actual investments and trades were being made by an investor. As a result, newsletter performance should not be used to evaluate Navellier Investment services which are separate and different from the newsletters. The owner of the newsletters is InvestorPlace Media, LLC and any questions concerning the newsletters, including any newsletter advertising or hypothetical Newsletter performance claims, (which are calculated solely by Investor Place Media and not Navellier) should be referred to InvestorPlace Media, LLC at (800) 718-8289.

Please note that Navellier & Associates and the Navellier Private Client Group are managed completely independent of the newsletters owned and published by InvestorPlace Media, LLC and written and edited by Louis Navellier, and investment performance of the newsletters should in no way be considered indicative of potential future investment performance for any Navellier & Associates separately managed account portfolio. Potential investors should consult with their financial advisor before investing in any Navellier Investment Product.

Navellier claims compliance with Global Investment Performance Standards (GIPS). To receive a complete list and descriptions of Navellier’s composites and/or a presentation that adheres to the GIPS standards, please contact Navellier or click here. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report.

FactSet Disclosure: Navellier does not independently calculate the statistical information included in the attached report. The calculation and the information are provided by FactSet, a company not related to Navellier. Although information contained in the report has been obtained from FactSet and is based on sources Navellier believes to be reliable, Navellier does not guarantee its accuracy, and it may be incomplete or condensed. The report and the related FactSet sourced information are provided on an “as is” basis. The user assumes the entire risk of any use made of this information. Investors should consider the report as only a single factor in making their investment decision. The report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. FactSet sourced information is the exclusive property of FactSet. Without prior written permission of FactSet, this information may not be reproduced, disseminated or used to create any financial products. All indices are unmanaged and performance of the indices include reinvestment of dividends and interest income, unless otherwise noted, are not illustrative of any particular investment and an investment cannot be made in any index. Past performance is no guarantee of future results.