One of the curses of my profession is that I constantly see financial metaphors in everyday life. Last night, while playing vinyl records from my youth, these lyrics from Crosby, Stills and Nash’s “Long Time Gone” made me think of the bear market:

It’s been a long time comin’ / It’s goin’ to be a long time gone / And it appears to be a long / Appears to be a long / Appears to be a long / Time, yes, a long, long, long, long time / Before the dawn.

It’s not the interpretation CSN intended, but I wondered: after a long, long time, have we finally witnessed market capitulation? It’s premature to herald the dawn of a new bull market, but the bear seems to be losing ferocity. Below, I examine four indicators of a market turnaround. I also show you a way to prepare for better days ahead.

It’s a fool’s game to try to time the market. I like to say, “time in the market beats trying to time the market.” But we’ve enjoyed a hefty rally in recent days, despite hot inflation and the Federal Reserve’s resolute hawkishness.

The Four Signs of a Lasting Turnaround

Here are four clues as to whether the bull’s dawn is on the horizon:

1) We approach an inflection point on inflation. The “core” (minus food and energy) consumer price index (CPI) hovers at a rate of 6.6% from a year ago. The Fed’s target is to keep core inflation at roughly 2%. The consensus among many analysts is that a core CPI of about 3% and falling, which is closer to the Fed’s target, would give the central bank sufficient elbow room to ease up on tightening to facilitate growth rather than curb an overheated economy.

2) The decline in jobless claims starts to reverse. As inflation peaks, so should the fall in jobless claims. The Fed’s tightening so far should eventually lead to a rise over the near-term in the filing of unemployment claims. That would indicate a cooling economy and consequently, the cooling of inflation.

3) Corporate earnings growth stays on track. The third-quarter earnings season so far has been muted but respectable (see chart).

Profit growth has decelerated, but we’ve gotten enough surprises on the upside from industry bellwethers to suggest that the stock market downturn has a floor.

WATCH THIS VIDEO: Preparing For The Post-Bear Bounce

For Q3 2022, the blended year-over-year earnings growth rate for the S&P 500 is 1.6%. Wall Street expects earnings growth of 3.6% for Q4 2022 and 7.0% for calendar year (CY) 2022. For Q1 2023 and Q2 2023, analysts are projecting earnings growth of 5.8% and 4.3%. For CY 2023, analysts predict earnings growth of 7.6%.

The economy is slowing down, but those earnings projections are not indicative of a deep and prolonged recession.

4) The U.S. dollar weakens. When the global economy comes under strain, investors flock to the greenback as a safe haven. We saw this happen during the recent political debacle in Britain, when the hapless new prime minister, Liz Truss, introduced a shambolic fiscal plan that freaked out the financial markets. Essentially, Tory leader Truss used the British people as laboratory mice in a libertarian experiment. She introduced massive but unpaid-for tax cuts, during a time of high inflation and monetary tightening.

In a humiliating backtrack, Truss shelved her widely derided plan and sacked her treasury chief, moves that helped stabilize the plunging British pound. As a modicum of equilibrium returns to global currency markets, the dollar should lose some of its powerful momentum.

Positioning for the next bull run…

Over two days, Monday and Tuesday, the S&P 500 added more than 3%. Global equities followed suit, with Asian markets leading the way.

Momentum seems to have returned, but the stock market remains volatile and it’s always dangerous to “buy on the dips.” The market may fall further. Indeed, after an auspicious start to the week, stocks are taking a breather.

On Wednesday, the main U.S. stock market indices closed lower as follows: the Dow Jones Industrial Average -0.33%; the S&P 500 -0.67%; the NASDAQ -0.85%; and the Russell 2000 -1.72%.

But with valuations now considerably lower than their peak in January 2022, now’s the time to increase your exposure to those sectors that are poised to take off once the new bull arises.

Which brings me to marijuana. Yes, marijuana. Not necessarily to imbibe, but for investment. Legalization efforts are gathering steam at the state and federal levels. As new legal markets are created, the next cadre of marijuana millionaires are born.

When the November midterm elections are over, we’ll see the creation of new state-level legal markets, thanks to a slew of ballot initiatives that are popular in opinion polls.

To discuss a wide range of investment opportunities related to the booming marijuana industry, I’m holding a special Town Hall on November 1. Be on the lookout for an invitation in the coming days.

John Persinos is the editorial director of Investing Daily.

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