I hope you had your umbrellas and your ponchos out this morning because it was raining blood when I started prepping for this video. You have to down down 3.11 the S P 500 down 3.84 and the Nasdaq down 4.74 We were just talking about how big of a disaster it was that the Nasdaq's year-to-date return was negative 11 plus percent, and then it's down another 4.74 in a single day. These are numbers of fear and volatility that we haven't seen since March 2020.. And matter of fact, this actually is the worst month since March of 2020.

And what's even crazier is that as I was filming this video, you got a complete reversion. Market has actually reverted to the extent that the Nasdaq went from being a leading loser to leading the other major indices Green and the Ruski small caps up almost two percent. Now, don't get me wrong, there's a lot of short to medium term fear catalyst on the horizon, but to a large extent the reason that this is actually happening is because you have algos that are for selling tons of equities by pushing them to pain points that force margin calls in other players of the market. And then you have other algos and even some of those same bear algos going and reversing the trend going and bear trapping over leveraged shorts and causing massive rebounds and rebounds.

And then a day or two later you have the bears coming back and crushing each convictionless rally. It's very wild, but this is what happens when you're in a market with a dangerous combo of extreme leverage and extreme levels of algo trading combined with honestly some relentless greed of pushing things to the downside, especially in certain small cap markets. But as Spider-man once said, with great volatility comes great responsibility and great opportunity. And in this video, we are going to violently talk about what the heck is going on, the new threats and fear catalysts, and then I want to walk you through three different scenarios that I see playing out in the upcoming months and quarters and overall my opinion on what you should do in response to these different scenarios.

Quite frankly, I think that after this current market fear and mass hysteria ends, you're going to have an unprecedented opportunity to grow your account and gain extra alpha on the market. and I'll explain why and how you can take advantage of that. And before we get into all of this, I do want to thank our sponsorpublic.com for sponsoring today's video. Public.com is an investing app where you can buy stocks, etfs and crypto.

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Okay, I want to go ahead and start with this piece from the Stanley's over at Morgan proclaiming that winter is here for stocks. Now the article states markets have not yet priced for decelerating growth. Goldman Sachs strategists see disappointing earnings guidance as well. This is more or less what we've been talking about on the channel over the last couple of weeks.

Markets seemed at least before today to be focused on one thing: inflation and the reaction from the Fed on inflation. While at the same time completely ignoring that we're going to have this swarm of companies reporting poor guidance to some extent, we knew that we're later staged in the recovery cycle to the extent that things were going to slow down. but a lot of people are under pricing in how much things are going to slow down. Worse yet, many companies are going to have lower and lower Q1s and Q2s, and we haven't even really started aggressive hiking of monetary policy yet.

I do think that if we see a massive slowdown in Q1 and Q2 and you see a several month change in inflation data, then you start seeing the Fed get a little bit more dovish and you see them start pausing. But that's really not a fast decision that's going to be made. And right now you're in the situation where the market's looking at the upcoming few weeks and they are all seeing these major companies reporting earnings and the markets are switching from being scared that the Fed is going to tighten multiples to now, primarily being scared that actually companies are going to be fundamentally losing value because we're in a slower economy, these companies aren't going to be doing the same numbers, which arguably you kind of get the worst of both worlds. You have the Fed tightening in an economy that's actually getting less and less hot instead of overheating, and you have companies fundamental value at least over a medium term, actually dwindling as they're able to reach less and less consumers.

I believe that a big reason that the market is extra squeamish right now is because it knows that over the upcoming weeks you're going to get a lot of companies reporting earnings. a lot of major companies reporting earnings, and they're going to be reporting guidance that resembles a punch to the throat. The other piece of fear right now is this Russia Ukraine situation. Moscow has moved around 100 000 troops near Ukraine in response to what it says are threats to its security from Nato and Western Powers, which of course in the West is seen as simply Russia going and preparing to invade Ukraine, expanding the Russian Motherland.

But my take on this in terms of the market and its potential reaction are two things. Number one: you have the looming catalyst of what happens if there is an invasion. Does this drag the Us and Allies into a full-scale war? or do they stand down and nothing really happens? like with what happened with Crimea, and the fact that Russia could decide to attack and invade on any given day provides a lot of uncertainty and fear in the markets. But number two, and something that's a little bit more tangible regardless of whether they invade, is the impact on energy prices.

About 40 of Europe's natural gas comes from Russia Da. which means in the event that sanctions are heightened or some sort of tension flows with Russia and that natural gas energy market is cut off, what happens, while energy prices overall skyrocket, natural energy prices go to the moon as Europe tries to replace 40 of their supply, and the lack of worldwide natural gas to actually support that demand would lead to oil prices and all other forms of energy skyrocketing. And remember, those are already very highly priced, which obviously would increase international inflationary pressures and certainly domestic. I'm not a foreign policy expert, and I'm not going to pretend to be, but it is my understanding that Russia is able to be ballsy with Ukraine, specifically because of the leverage it has in that natural gas market.

They know that when push comes to shove and vodka comes to water, European countries that rely on Russia for natural gas will have to look the other way to some extent or face extremely higher energy prices that crush their citizens. Even Ukraine relies on Russia for natural gas, and the Us wallet also has a lot of natural gas is almost tapped out in terms of production. So it's not like the Us would come to the rescue in these other markets unless they get rid of some regulations. But that's a whole other story.

But I guess in terms of the fear around this, regardless of how this plays out, on one hand, you have the fear of increased energy prices, and on the other hand, you have that fear of well, tomorrow they could invade and markets could drop. Lastly, in terms of negative catalysts, you also have the anticipation of the Wednesday Fomc meeting and announcement. as we know the Fed is on a hawkish rhetoric cycle and a hawkish action plan. So any announcement or any sort of hints they give that they're getting a little bit more hawkish is going to be something that spooks the market.

unfortunately. But anyways, I prepared three scenarios for what we are facing just to show you where I'm at on these issues and my forecast and viewpoint of what we're potentially looking at over the upcoming months and quarters. So let's go ahead and start with my worst case scenario. I have to admit, I do believe that there's a possibility that this happens, but I believe it's a very small possibility compared to the other outcomes and I'm aiming for this not to be the case.

But regardless, I believe that the same action should be taken by the dip on plays that you believe are good value and being stoic about the outcome. But if you want to talk about projections, the worst case scenario is that we are in a period where earnings guidance and then actual growth slow down dramatically in Q1 through Q3. I think that's actually going to happen in all three scenarios, but economic growth drops off to the point where you're either stagnating or slightly in the negative. Companies slow customer outreach and hiring drops off heavily as they preserve capital.

Meanwhile, and this is the crucial part, you have all of these deprecating economic factors taking place the economy's slowing down. It might be slightly negative at the same time, where you have what you have supply chain issues continuing to get out of whack. Now again, I am favoring with almost objective 90 certainty in my viewpoint in my projections in my research that this isn't going to play out. but in the 10 scenario where you get that worst case scenario, supply chain issues go in the wrong direction and accelerate.

And if they go in the wrong direction and accelerate, you have a big problem because this comes at the time where economic growth is decelerating, so the Fed still has to act on inflation at the same time where employment and economic data is going down. It's like having a horse that's running in last trying to limp to the finish line, and then Jerome Powell coming out and breaking another one of its legs. Just simply rude and not good. In the scenario, if the Fed has to substantially tighten during a period that already has economic slowdowns, I think you're talking a high chance of a recession.

Now again, the reason that I have to include this in here, regardless of whether it sounds like fud or not, is because there are some big unknowns that we have right now. Anything that destroys the supply chain and causes our supply chain recovery to revert can cause the scenario to happen. What could destroy the supply chain again? Well, a new variant surge that causes mass skill lockdowns. again? I don't think that's going to happen, but there's always that possibility.

And the other thing is, if you do get that Ukraine invasion, you're going to see energy prices accelerate to an insane degree, and that's going to cause the cost of everything to go up, which could cause more persistent inflation during the same period of time. Where again, you're getting slowing economic growth. Anything that's a massive threat to the supply chain and the supply chain recovery could cause and contribute to the likelihood that some version of this worst case scenario happens. Now in my best case scenario, on the one that I think is actually going to happen, you get a slowing economy, but that slowing economy slows down our inflation problem and allows the Fed to be more accommodative.

It doesn't necessarily reverse the Fed's trajectory, but it does pause or at least slow down the Fed's acceleration of monetary policy tightening. You still get earnings guidance and then actual growth slowing. In Q1, Q2, and perhaps Q3, economic growth drops to some extent. It could even go negative.

I think it's probably going to just be under the normalized range before. Later on, maybe 2023, you start getting a bounce back. Maybe fall, you get a bounce back. But you have the added effect of supply chains coming under control and excess inventory buildup.

Right now, we're on the pathway to this scenario happening. In my view, supply chains are getting better. you're going to have no supply problems, you're going to have consumer demand dwindling, and you're going to have this environment where economic growth is just slowing down as we get to a later stage in this process. And then the slowing down of economic growth cools down.

Inflation? Great. Some people are projecting deflation. I think in the best case scenario, you're looking at disinflation, which is a lowering of the growth rate of inflation. but you're getting a small amount of normalized, maybe a little bit lower than normalized inflation because of that economic crunch.

Now, remember, the Fed's goal is to maximize employment, really promote economic growth, and then control pricing pressures. Right now, it thinks that it's done the first two, so it's focusing on the last one. If inflationary pressures step back to the extent that they're below two percent, which is the average at which the Fed is trying to target. the Fed in my view, may not go and cut rates, but they're certainly going to be a lot more dovish in terms of the heights that they're going to do.

Now that leads me to the mid case scenario. You get the situation where economic growth is dropping. Maybe it doesn't go negative, but it's dropping more than it should be. Companies are guiding lower and performing lower valuations, start matching for lower expectations, and inflation simply takes longer to cool off.

Perhaps some catalysts slow the pace of deflationary pressures that are supposed to counteract inflation, and because it's taking longer for inflation to get under control, what happens? Well, the Fed goes through with the market's expected rate hikes and overall tightening for 2022. Perhaps it's even a bit more aggressive than the market is pricing it. But when you finally do get through that at the end of 2022, early 2023, you do have the Fed going and putting the brakes on it. Now, in terms of the market reaction to each, I think in the worst case scenario, you have a continued massive dip in the broader market, no indices are spared, and then you have a much much slower, uncertain recovery, but epic recovery over the long run.

You'd have to be extremely patient, not just give it a lot of time for the Fed to reverse their policy, but also for economic growth to come back, and of course, inflation to come down. But in the best case scenario, you see the bottom in the market somewhere in Q1 and then Q2, you get a cautious rebound. and then by Q3 and Q4 when inflation starts clearly slowing down and the Fed signals dovishness, you get a massive bull trend. So basically, the more it sells off now, the better the recovery cycle is going to be at the end of the year.

But I also want to be clear: I do think that small to medium caps are going to bottom much faster than the rest of the market are, and the massive bull trend that I'm projecting here is based on the assumption that Big Tech is going to have more of a cool off cycle and the large cap market is going to come down to earth. And the reason that I think that small and medium caps are going to bottom first is because again, what we discussed yesterday, the forward p E ratios are significantly and historically frothy for the biggest mega caps and historically oversold for the small and medium caps. And if you look at the peg ratios for small caps, you're looking at levels that we haven't seen since the Great Recession. I understand that there's a narrative that says oh, if the indices go down another 50 percent, small caps are all going to become penny stocks.

Hey, it's possible, but at the end of the day, we're historically undervalued and historically oversold. So if you're going to take chances of what's going to bottom first, I would argue it's going to be the small cap market. Now In the third mid case scenario, it takes longer for the bull trend to come back, but it still comes back just like it does. In the best case scenario, it just takes longer probably bottom sometime in early fall, and if the Fed decides not to do that last rate hike in December or it's a lot less than expected, then all of a sudden you're in the situation where the market is set to have a huge, huge big bull run in 2023..

now again, these are my thoughts moving forward and they're based on the assumption that the economy is not strong enough, and I think the data backs me up to a large extent on that. but the economy is not strong enough to have a substantial tightening of monetary policy without the economy seeking back into a deep deep recession. And I think that the Fed, the minute that inflation starts cooling down, is going to recognize that and see that in the data, and it's going to decide to be more dovish or at least pause. So anyways, in terms of what to do, I would argue in all three of these situations, it's going to be very, very difficult to get the exact bottom and so I would simply focus on.

While the fear is here, making sure to look at your list of stocks that you want to buy, look at the fair value that you set on them. If you don't have a fair value set, make sure to go and do that and then the deeper and more obviously discounted they are strategically and slowly buy the dip on them. If you miss the bottom and it drops more, you're going to be made fun of on Reddit and maybe on Twitter, but I would start focusing on not so much how this is going to be trading during the current Bear cycle, but how it's going to be trading when the bull market inevitably comes back. That way, instead of panicking constantly, you're celebrating.

It's always funny how psychologically dips look like huge opportunities when you look at them in hindsight, but when you look at them in the present, they look like huge risks. And not only that, but the bigger the dip, the less likely we are psychologically to want to buy it. If something dips 10 from an uptrend, it's a lot easier to buy because oh, it's just dipping short term from a big uptrend. But if something's dipped 40, 50, 60 percent, or if it's dipping for a month or two, you start thinking in your head, wait, this is never gonna come back when in reality, if you actually have conviction in that company, buying it at a price that's way below what you see is the fair value is always a good idea.

I see so many people that love companies at much higher valuations and would have bought them at any price during their euphoria cycles Now saying well, I don't want to catch a fallen knife, so I better sell everything out now and not buy more. And that's the telltale sign of somebody that doesn't really understand the company that they're buying. If you are buying a high conviction company and it's in a bare cycle, I would argue. Don't try to time the bottom, be very slow and strategic at define and understand the macro factors, but also understand that you can't find exactly when those macro factors are going to stop crunching these valuations.

But I think a combination of looking at the company and looking at the longer term and also strategically buying in slowly will get you a good combination between making sure that you're in the market for a rebound and making sure that you can add more if you get bigger dips. Anyways, folks that caps off this video. If you have any questions, feel free to reach out to us below or join us on Ziptrainer Circle Again, Thank you to Public.com Ziptrader for sponsoring this video. Make sure to get the free stock down below up to a thousand dollars when you sign up using that link.

Have a good one and I'll see you in the next video.