STOP BUYING STOCKS | The Market Is About To Bottom

What's up guys, it's Graeme here. So let's face it, for anyone who's watched the market over these last two months, we all know that absolutely nothing makes sense anymore. Like, if we get bad news, the stock market rallies because the news wasn't that bad. And if we get good news, the stock market falls because everyone uses that as an opportunity to cash out. Up is now down, left is now right, and the only people making money are betting their life savings in the rare fish market.

So, that then lends the question: with the stock market acting so unpredictably, mass layoffs throughout the entire job market, and a missing pet tortoise reunited with his owners after being lost for 30 years in the attic, did we end up missing the stock market bottom? Now that the prices are above the recent lows, or is the stock market about to drop again now that economists are warning that the US is on the brink of stagflation and an economic hurricane, while Elon Musk had a bad feeling about the economy?

In this video, I'm going to be dusting off my crystal ball and going over all the reasons why the stock market should, in theory, continue going down. Then, we'll address the counterarguments as to why the stock market should, in theory, continue going back up. And listen, I'll tell you up front I'm not going to try to pretend like I have any idea what's going to happen. Instead, I'll give you the perspectives of both sides, share my own opinion, and then let you come to your own decision because I'm just a guy on YouTube making videos alone on a Friday night in a half-converted garage.

So, with that said, you guys make sure to subscribe, hit the like button for the YouTube algorithm, and comment down below if you think I've missed any of these points or if there's anything you want to add.

All right, now as a quick backstory, I think it goes without saying that we've seen a pretty turbulent time throughout these last few months. Since March of this year, the FED began their operation quantitative easing as a way to fight record-high inflation by raising interest rates, reducing money in the economy, and crashing the stock market. Year to date, the NASDAQ declined more than 24 percent, both the S&P 500 and Dow Jones are off more than 10 percent from their peak. Some of the most talked-about stay-at-home stocks have fallen as much as 70 to 90 percent, and now recession concerns are beginning to increase.

The fact remains when you look at the data out of the last 13 rate hike cycles, 10 of them have preceded a recession. As Fannie Mae concludes, we're a lot more likely to see what they call a hard landing, right as the FED signals that they're about to be much more aggressive than they have been in the past.

But where a lot of people want to focus right now is on the stock market, which makes sense because seeing these markets is like watching a back-and-forth game of ping pong. That leads many people to wonder how long is this going to be going on for, and when could we see the bottom?

All right, so we should probably talk about the bad news first and get it out of the way, and these are the reasons why the stock market could continue going down. First, the FED has begun to reduce their balance sheet. See, for the last two years, the FED has provided a backstop to the economy by purchasing corporate debt, buying mortgage-backed securities, and ensuring that anyone who needs a loan got a loan at an interest rate that would spark growth within the economy.

As a result, it was estimated that 80 percent of all US dollars in existence were printed in the last 22 months. Although the side effect to that was something that Janet Yellen never expected: runaway inflation—insert surprised Pikachu face here. This leads to what's called a balance sheet runoff, where the Federal Reserve begins to sell their own portfolio in the open market and destroy the money that they received from previously issued loans.

If that sounds confusing, here's what it means: in a normal market, the FED issues loans, and when they're paid back with interest, they take that money and reissue it to someone else, allowing for a constant flow of money into the economy. In this case, however, they're getting paid back and then dumping that money into a fire. So, it's no longer in circulation.

Okay, they don't actually throw the money into a fire, like a scene from Batman, but you get the idea. As you're about to see, this points to serious concerns about whether or not the stock market rally is sustainable without ongoing Federal Reserve intervention. Generally, during times of tightening, the stock market tends to flatten or, dare I say it, decline.

Second, higher interest rates and slowing growth in response to higher inflation. The FED's goal in the short term is to achieve what's called the neutral interest rate, which is an interest rate that neither sparks nor halts economic growth—it's just neutral. To make things even more confusing, this neutral rate isn't even known; it's just estimated based on various analysis and observations.

Now, it is assumed to be somewhere around 2.5 percent, but others argue that that assumes that inflation comes down, and if it doesn't, they may need to hike rates even further, with one analysis calling for rates to hit 4.25 percent, which is far from where we currently stand at just 1 percent. As a result, S&P 500 returns are shown to be three times lower in a rising interest rate environment, not to mention there's also data that suggests that we're about to see an upcoming decade of subpar returns only because we've experienced so much growth already, and that needs to be considered.

Third, the tech sector is seeing the most job cuts since 2020. I'm not even sure where to begin with this, but these are some of the more notable layoffs: Tesla reduces its workforce by 10 percent, PayPal begins to cut staff, Robinhood announces that nine percent of their company will be let go, Netflix lays off 150 employees, and the company that laid off 900 employees on a Zoom call just fired 3,000 more. Honestly, this list just goes on and on, and on, but as you can see, this is just the tip of the iceberg, and it's expected to get worse. And yes, we're still scrolling, and that doesn't even include all the drop phrases on top of that.

This is being referred to as the pandemic reset while companies re-evaluate demand, cut costs, and adapt to an environment that isn't flush with stimulus checks and low interest rates. Fourth, we got the economic boogeyman: stagflation. In a way, this would be the worst-case scenario for not only the stock market but also the entire economy. If you're not familiar with it, here's what you need to know: stagflation refers to a time when growth is slowing, unemployment is increasing, and inflation is high.

This would be a situation where the solution to fix one would make the other worse. Even the former chair of the Federal Reserve said that under the benign scenario, we should have a slowing economy; inflation is still too high but coming down, so there should be a period in the next year or two where growth is low, unemployment is at least up a little bit, and inflation is still high.

Finally, fifth, we really have no idea how much exactly is priced in. Like, you know the saying: buy the rumors, sell the news? Well, this is kind of a play here. The stock market does not care about what's happening right now; it only cares about the future. All we got to do is take the current price, factor in what's likely to happen over these next few weeks, sprinkle in a little euphoria and a dash of FUD, and everything that's better or worse will be reacted to at that time completely randomly.

However, to counteract some of these claims, let's talk about the good news and discuss some of the reasons why the stock market might actually start going back up. All right, so in terms of why the stock market could soon be going up, first, it's because Jim Cramer told us so—with certain tech stocks having nowhere else to go but up.

Okay, no, but seriously, one analysis shows why the S&P 500 could actually be fairly valued. This chart shows the stock market's value in relation to interest rates, and as you could see, we're trading right around normal. Second, inflation may have started to decline. A new report shows that monthly core inflation came in around 4 percent annually, down from 6 percent in the three months before it. Of course, it's still too early to tell whether or not this inflation is going to be the new norm, but it does appear as though a slowing economy is leading to a reduction in prices, which may suggest that the worst is behind us.

Third, China entered their Shanghai lockdown after two months. Now, this is an absolutely unfortunate situation to begin with, but the expectation is that this should lead to some level of normalcy overseas. Now, of course, this doesn't mean that we're in the clear quite yet, but it is a step in the right direction.

Fourth, rising inventory could lead to lower prices and even lower inflation. It was reported that inventory levels are high as companies chased as much merchandise as possible to support demand, which has now slowed. They should, in theory, reduce some of the inflation numbers, which might lead the Federal Reserve to ease on the rate hikes, allowing the stock market to pick back up.

The fifth point is that many segments of the market have already dropped from peak to low up to 90 percent—the worst, which is not an insignificant drop by any means. Now, it's certainly not to say that the market can't fall even more, but this could be a sign that valuations are beginning to approach a level that's more in line with what the market can support.

And six, anecdotally, it does seem like there's a lot of pessimism that the market will continue to get worse and the prices will fall. That makes me think that if everyone believes that to be the case, it might not happen. That's because if everyone believes the market is going to behave in a certain way, they could take precautions ahead of time that would prevent that outcome from happening.

It's kind of like if I told you 100 percent that you are not going to subscribe in the next 10 seconds, 100 percent you're not going to do it. Well, guess what? Now that you know that, you could prove me wrong and actually go and subscribe. Well, in a way, that's kind of what's going on here. If people have the expectation that the market's about to drop off a cliff, they're not going to sell anything they haven't already sold, and that gives the market the opportunity to then begin going back up in price especially when the majority of retail investors have already sold out of the stocks they purchased over the last two years.

So, as far as what I think, in the short term, betting either way is going to be the equivalent to flipping a coin: heads or tails. No one knows the full scale of what's to come or if it's better than expected or worse than expected. I'm sure half the people out there making predictions are going to come forward saying that they were right and they knew what was going to happen just because it happened to turn in their favor.

That's not to say that we can't look at economic data, analyze it, and come to a reasonable conclusion. But at the end of the day, we really had no idea how the markets are going to react and when the bottom is going to be. I just believe for a long-term investor, assuming you're going to be keeping those investments for at least 10 to 20 years, you're best off just buying every single week—riding the highs, riding the lows—and over the next few decades, you're going to be coming out just fine with hopefully a lot of profit on top of that.

Another piece of advice that I directly follow all the time is to only focus on what you directly control. For example, you control whether or not you smash the like button, whether or not you cut back on unnecessary expenses, whether or not you live below your means, whether or not you invest consistently long-term, whether or not you pay down any high-interest rate debt, whether or not you keep an emergency fund, whether or not you're over-leveraged with your investments, and whether or not you use your time wisely to stay employed and hone your skills.

By focusing on what you can control and ignoring everything else you can't, you give yourself much greater power to focus on the opportunities of right now without concern over what the market may or may not do in the short term.