The recession is here... Watch out below!

It seems more and more that the recession is here. This includes a dramatic decline in ISM Manufacturing discovered this morning. As you probably know, most economists call manufacturing the “canary in the coal mine” for the US economy because it often shows weakness before other areas. In fact, the Atlanta Fed's GDP Now reads it loud and clear with a negative revision for the US economy at -2.1% for the second quarter. Ouch! We'll discuss these new economic facts...what this means for the stock market outlook...and an interesting take on why the S&P 500 (SPY) isn't declining in an orderly fashion. . All that and more awaits you in this week's commentary….

Please enjoy this updated version of my weekly commentary.

Recessions and bear markets go together like peanut butter and jelly. And that's why we investors need to be on the lookout for a recession right now to confirm why the bear is up and likely to go down further.

Unfortunately, Friday's indices all but guarantee that the recession is here for which investors should "watch out below" for more downside activity.

As noted in the intro, ISM Manufacturing was a serious disappointment today, well below expectations at 53.0. Worse still, the forward-looking component of new orders slipped into negative territory at 49.2.

All of this bad news was factored into today's -2.1% reading of the Atlanta Fed's second quarter GDP estimate. This is a notable drop from just -1.0% yesterday. Let's not forget that in mid-May, this model indicated a growth of +2.5.

This clearly indicates that report after report the economy has been heading in the wrong direction for some time.

Now consider that the definition of a recession is 2 consecutive quarters of negative GDP. So, with an anemic Q1 of -1.6%, investors were right to head for the hills at the start of the year.

So now we have a roughly confirmed recession that goes hand in hand with a confirmed bear market since 6/13 when we broke through the 20% down line at 3,855.

I suspect the bottom will be between -30% (3372) and -40% (2891) given that the average bear market is down 34%. Which means we haven't seen the dips yet.

Now on to another interesting conversation that my many clients have brought up. If it's so obvious that we're in a recession and a bear market...then why isn't the S&P 500 (SPY) going down in a more orderly fashion?

For example, today, with even more signs of recession in hand, the market actually finished higher. It just doesn't make sense on the surface. But as we dig a little deeper, we'll appreciate the circuitous path stocks take to their final destination.

First and foremost, we know that nothing is smooth with the market (SPY). Since the rise of computerized trading, it has dramatically amplified volatility with many more sessions in the plus or minus 1% camp.

However, the real problem is that there are so many different types of investors with so many different styles and viewpoints that a smooth alignment of goals is never in the cards. For example, consider all of these different aspects of investing:

Long term buy and hold investors versus swing traders with a 1-3 month time horizon versus day traders trading in seconds and minutes.

Aggressive or conservative investors

Growth vs Value vs Income vs Aggressive Investors

Computer Driven Quantitative Models vs Human Decision Making

Fundamental investors versus technical investors.

Even in the realm of fundamental investors, you understand that economics is an inexact science. So if you have 10 economists in the room, you'll probably have 10 different opinions.

Heck, over the decades, only 40% of economists on average predict a recession before it happens. This is why economists are often the butt of stock market jokes.

And the list of different viewpoints goes on. And that's why the S&P 500 (SPY) rarely rises or falls smoothly.

Back to main point. It's a recession. And therefore a bear market. Lower inventory in the weeks and months ahead is the most likely outcome.

HOW, WHEN AND WHERE we find the bottom is the big mystery. But as long as you appreciate the big picture, you can align with prevailing trends and find a way to outperform.

What to do next?

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