Wall Street's Talking "Correction;" I'm Planning For the "Next Bull Market"
Even the "last bear" on Wall Street says to buy stocks ...
In late May, “The Last Bear on Wall Street” threw in the towel.
Morgan Stanley MS 0.00%↑ Chief U.S. Equity Strategist Mike Wilson — one of the last bears among the big-name pros — finally capitulated and turned bullish on stocks … after missing much of the bull market when his bearish forecast for 2023 never came to pass. (The S&P gained 24% last year.)
When he shifted to bullish mode, Wilson boosted his S&P 500 target from 4,500 to 5,400 – an upside of only 2% from where the index was trading at the time. The S&P kept zooming – finally peaking at an all-time-high of 5,669.67.
Then came early July.
That’s when Morgan Stanley’s Wilson turned bearish again.
He said traders needed to ready themselves for a big pullback — predicting a 10% correction between then and the election was “highly likely.” He also said the third quarter — the one we’re in now — would be choppy … and said uncertainty over the presidential election would be a major contributor. And he said the likelihood of a broad market “upside” by year end was a paltry 20% to 25%.
And he said all that before the July 13 assassination attempt of former U.S. President Donald Trump during a rally in Butler, Pa., an event that — to this point — has supercharged Trump’s push to recover the White House. And that’s shifted the market narrative.
I’m not picking on Wilson. In fact, though we’ve never met, I kinda respect the man. He offered a mea culpa, didn’t hide from being wrong, did all this with the kind of candor I admire.
“At the end of the day, this is a tough gig,” Wilson said in an interview with Bloomberg TV. “That’s not an excuse, it’s what we get paid to do. Sometimes we get it right, sometimes we get it wrong. It doesn’t put any pressure on me to do my job any different.”
Wilson wasn’t alone in his worry: Goldman Sachs Group’s Scott Rubner, JPMorgan Chase’s Andrew Tyler and Citigroup’s Scott Chronert all “sounded the alarm” about a possible pullback in stocks, Bloomberg reported in that early July stretch.
More recently, Stifel Chief Equity Strategist Barry B. Bannister issued a “strategy note” to clients calling for an S&P 500 correction of more than 10% by October.
Here’s where you’ll usually hear me say: I don’t care.
On its face, I know that sounds flippant. And that’s not my intent. The fact is, the reasoning behind that “I don’t care” dismissiveness is much more nuanced and (I believe) more carefully thought out.
From a Big-Picture point of view, I really don’t care what the broad stock indices do today, tomorrow, next week, next month or even next year.
And with good reason, since:
I’m a stock picker, not an index investor — so my focus is on the companies I like (and their shares).
I follow the best storylines to find the best stocks.
I care about the long run — which means I’m neither a short-term trader nor a buy-and-hold forever guy … and I also don’t overreact to the “bad news du jour.”
I’m a “Contrarian Investor” and author — which means I’m buying when others are uncomfortable, scared and “dumping” stocks when they should be doing as I am.
And I’m an “Accumulator” — meaning I add to the “foundational stakes” of those same stocks when they’re down, once again when most are paralyzed with fear or panic selling.
So when stocks sell off, I don’t see a “pullback” … I don’t see a “correction” … I don’t see a “bear market.”
Those share-price drops are table-setters for the “Next Bull Market.”
That’s why I “accumulate” during pullbacks today … I can profit during that “Next Bull Market” tomorrow.
Remember the mantra here at Stock Picker’s Corner (SPC): You’re either a Wealth Builder … or a Wealth Killer.
The “Next Bull Market Mindset” — coupled with that “accumulate strategy” — is the ultimate Wealth Builder blueprint.
And I’m going to show you how to do it … starting today … with follow-ups later this week.
How Wall Street Leads You Astray
The first question to answer here deals with the topic I opened with: A stock market correction.
We we have one? Or, more specifically, will we have one as soon as these Wall Street types are saying? When will it start? How long will it last? How big will it be?
The honest answer? I don’t know.
But neither do they.
After all, as I said earlier, Morgan’s Wilson — as “The Last Bear on Wall Street” — missed last year’s big run in stocks. (Honest to Pete, I’m not picking on the guy … and I respect him for his candor).
So your next question should be: “Okay, Bill, if no one knows, why are we even having this discussion?”
Simple. It pays to be ready.
At some point — we don’t know when — there will be a correction. It’ll separate the Wealth Builders from the Wealth Killers. And we want to position ourselves to win.
In the meantime, as this “Correction Cacophony” of Wall Street predictions escalates — and it will — it’ll get in your ear.
And as we’ve all seen before, the thrum of correction prattle leads to a predictable — and potentially ruinous — series of events.
First investors “hear” the talk. Then they “listen.” Then they “act.”
And it ends up like this:
Stocks stumble — maybe even like tech shares did last week. Seems like just a bad day … or a short bad stretch — like so many we’ve seen. But somewhere in the background — in the deep recesses of our brains — are those Wall Street correction predictions. The seeds of doubt were planted. Investors don’t respond. Yet.
The losses continue — giving us a number of bad days for stocks, but with enough “up” days interspersed to keep investors from crying “Correction!” But those seeds of doubt begin to germinate. Folks start thinking (and saying to friends): “Hey, remember those Wall Street guys who predicted a correction? Could this be it?” The “hearing” has shifted to “listening.” They don’t “act” — yet. But the hook has been set.
The losses start to sting — and emotion kicks in. Investors have the worst of those gut-punch epiphanies, realizing: “Hey, I’m losing money here!” And the “hearing” to “listening” to “acting” cycle begins to hit that end point. Emotion takes over — and investors start selling.
A “correction” gets crowned — as more investors “act” and the market’s sell-off accelerates. The S&P, Dow Jones Industrial Average and Nasdaq Composite each cross the 10% loss threshold which is the official demarcation line of a “correction.” Selling begets selling, as emotion takes hold. Depending on the speed of that decline — and the “backdrop” — the losses in those broad indices may accelerate. And that "correction” could turn into a “bear market” — or a full-blown “crash.”
And investors get blistered — because they sell out here at the bottom. And it gets worse from there: They often capitulate within walking distance of the sell-off’s end. And they’re so fed up with stocks at that point that they’re still sitting on the sidelines when stocks rebound. By the time they get bullish again, they’re way behind. And it can get even worse from there: When they do find that inner bullishness, it could well be that another bullish-to-bearish “inflection point” is looming — meaning they’ll repeat this whole mess.
And the seeds of this season-of-discontent sell-off scenario I described were sown by Wall Street … over these past few weeks.
Them Versus Us
Here’s why you need to know this. Hearing what Wall Streeters talk about is one thing. But “listening” — which means they’re in your head and influencing your thinking — is quite another. And once you succumb to their views … you’re finished.
Succumbing (by definition) means you’re reacting. And reacting usually means you’re behind.
So when the sell-siders, the hedge-fund guys, the fund managers and the other pros start talking, you need to check your responsiveness at the door. In short, when you “hear” anything … here’s what you need to keep in mind.
You need to differentiate between “what they do” … and “what we do.”
Or, better still, what we should do … including:
Wall Street strategists like these guys talk about “The Market” — which means indices like the S&P, the Dow Jones Industrial Average or the Nasdaq Composite. We’re “stock pickers” — meaning we look at individual opportunities. We find the best storylines to find the best stocks.
Wall Streeters are traders, who think in the short-term. We think about the long run. The long run is where the winners get separated from the losers. The long run is where our mistakes (and every investor occasionally makes them) come out in the wash. The long run is where real wealth is made. I don’t mean “buy-and-hold forever.” But I do look at “best-storyline,” Wealth-Builder plays we can hold for three, five, seven or even 10 years.
Wall Streeters move in and out of stocks — and they rarely do so at the optimal moments. Motion of any kind is accompanied by “friction.” And friction is waste. All that friction … all that waste … means they are Wealth Killers, not Wealth Builders.
An Ooze of Bad News?
Will there be a correction … or perhaps a bear market?
Could be.
I mean, the “raw ingredients” for a broader sell-off certainly seem to be mounting.
For instance:
On Wednesday, shares of chipmakers and chip-equipment companies incurred one heck of a haircut after reports surfaced that the Biden Administration was looking to curb exports to China of cutting-edge semiconductor-production machinery. Tech stocks in general were routed.
On Thursday, a new report said Chinese investors dumped a record amount of U.S. stocks and bonds in May as the flintiness between the world’s two biggest economies continued to get worse.
On Friday, a tech outage caused grounded airline flights, blocked consumers from accessing their bank or healthcare accounts and even short-circuited broadcasters.
U.S. consumers stacked on another $11.3 billion onto what they already owe for cars, student loans and credit-card purchases – much more debt than expected and nearly double the $6.5 billion added in April and a troubling trend given that consumers drive 70% of the American economy.
The U.S. Federal Reserve Beige Book — a look at conditions across the 12 Fed districts — suggests the American economy is weakening. And recent reports say China’s economy is faltering due to stumbling consumer demand.
The latest earnings reports point to possible problems in such sectors as manufacturing, banking and tech — a problem with valuations high and uncertainty creeping into the economy.
And a top macro guy — whose personal number I keep in my Platinum Rolodex — just told me that his models show that the increasingly likely Trump presidency will lead to a massive re-acceleration in inflation, thanks to the likelihood that U.S. deficits will swell.
You get the idea: Troubling signals are stacking up.
I’m just not that worried.
I know that agonizing over where the Dow, S&P or Nasdaq is right now — or where they’ll be tomorrow, next month or early next year — just doesn’t matter.
There will always be a Next Bull Market.
Maybe it’s that Contrarian nature I mentioned that makes it easy for me to embrace that Next Bull Market mindset. I actually co-authored a book on Contrarian Investing. And my interest in stocks was ignited by the Crash of ’87.
That taught me patience … and cemented that “long view” in my Wealth Builder arsenal.
And it pays to be “long” on stocks — since stocks tend to go up most of the time – and over time. And buying during bad stretches gives you an advantage over folks who chase the bull.
Check this out …
Wealth Builders & Wealth Killers
Wealth Builders understand that stocks — as a group — have a bullish propensity. Wealth Killers haven’t had this “investing epiphany.” That makes them vulnerable — to all the data points, market wiggles and “competing voices” that Wealth Builders have learned to tune out.
That’s why Wealth Killers get shaken out during “scary moments,” and lose out – since some of the market’s best moments occur against some of the worst backdrops. (More on that in a moment.)
Wealth Builders also know that pullbacks, corrections and bear markets aren’t just inevitable … they’re downright healthy for the stock market.
A drop in stock prices shakes out all the “weak hands” — the speculators, the ill-informed and the “I’m not that committed to this stock/rally/bull-market” crowd.
That means the smart folks — the “strong hand” investors like you and me — are still in the game.
It’s like a pub that clears out the riff-raff. Or a forest fire that burns up all the branches, dried leaves and rotted trees to rejuvenate the soil, clearing the surrounding ground for new growth and creating spaces in the forest “canopy” to let in a lot more growth-fostering sunlight.
A sell-off in stocks performs that same healthy function.
And, with a “Next Bull Market Mindset,” it sets us up for the next Wealth Builder move – a strategy that’s the true differentiator … and one that really creates the wealthy elite.
I call it the “Accumulate Strategy.”
And it’s a key to building wealth.
Buy Low, Buy Low and Buy Low Again
Every investor knows the investing maxim of “Buy Low, Sell High.”
But very few people actually follow it.
They know this maxim logically … intellectually. But they act emotionally.
Bull markets tend to last about four years. But the average correction (a decline of 10% to 19%) lasts 138 days. And the average bear market (20% or more) persists for less than 18 months.
In short, we know that a bear market today is a table-setter for a bull market tomorrow.
And since, as I’ve already shown you, it pays to be “long” if you’re a long-term investor, we also know that buying the shares of the best “Best Storyline Companies” during these darkest stretches will magnify your wealth when that Next Bull Market inevitably comes.
To say it another way: If the S&P 500 takes a 10% spill (a correction) or a 20% freefall (a bear market or even a crash), doesn’t it make sense to view it as a “Buy Low” opportunity?
I mean … that’s the point in time where that “Buy Low” opportunity that we all know to be correct is being handed to us: Prices (valuations) will be lower, making those great companies cheaper to snag.
It’s not the case for Wealth Killers: They succumb to emotion; they wait until “things look better” – and they really clobber themselves by missing the “best days” for stocks.
In this table from The Visual Capitalist, check out what happens if you start with $10,000 — and invested it in the plain-vanilla S&P 500 over a two-decade stretch. Forget about lagging the market: If you miss enough of those “best days,” you’re a flat-out loser.
That’s why Wealth Builders flip the script. They look forward to selloffs. They keep shopping lists of stocks they want to buy for the first time, or holdings they want to add to. (The hot-button SEO term these days is “Watch Lists.”)
And they do so on pullbacks, or when they get more cash.
They buy low … and buy low again … and buy low again — and cash in on the Next Bull Market they know will come along.
And if you invest in a good company today, the stock price today will be less than the stock price next year, in five years or a decade from now.
So don’t obsess over today’s prices: Focus on the “Next Bull Market” – the bull market that comes next year … or five years after that.
That’s the essence of an “Accumulate” strategy.
And, in an ironic postscript, it’s a view that “Mr. Last Bear on Wall Street” — Morgan Stanley’s Mike Wilson — actually agrees with.
As he proffered his prediction of the 10% correction, he also offered some advice I totally agree with, saying:
Don’t obsess over about a correction from these market levels.
Use a pullback as a buying opportunity.
And (for now) focus on individual stocks — rather than indexes.
Good stuff, Mr. Bear … we’ll make a Wealth Builder out of you yet.
And be sure to stop back next time … when I’ll give you some stocks to put on that “Accumulate” list.
We followed this up with the promised list of pullback-stock candidates for readers to consider ...
https://stockpickerscorner.substack.com/p/watch-list-five-stocks-in-five-minutes