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As we kick off a new trading week, investors are hoping the stock market can transition to a new season as well. And given the oversold levels and Friday’s late-day rebound, we may be in for a change!

Let’s start the week by taking a look at where things stand and what investors can expect over the next few trading sessions.
 

A Painful Rear View Picture

Investors have been weathering quite the storm this year. Here’s a quick snapshot of where the market stood as of Friday’s close:

• The S&P 500 index is down 17.71% for the year.
• Worse, the Nasdaq 100 index is in a true bear market, down 27.35%.
• The Dow Jones Industrial average has held up better, only off 13.38%.

These declines are affecting how different investment strategies make (or lose) money.

For instance, my Put-Selling Income Model is currently down 11.98% for the year. That’s better than the market averages, but certainly frustrating to be down this far into the calendar year.

On the other hand, my Speculative Trading Program is up 73.14% for the year. But this model takes an aggressive approach and is actually off quite sharply for the month of May (after booking large gains earlier in the year).

Past performance is no guarantee of future results. You should never invest capital you can’t afford to lose. And that’s especially true for more aggressive or speculative trading programs.

All told, this has been a challenging market for investors. Even if you own some of the strongest companies in our economy right now.

But after pulling back for the first few months of the year, I’m a lot more excited about the value that investors can get for their investment dollars.

And on a short-term basis, there are reasons to be optimistic. We may even see a sharp reversal this week!
 

Three Challenges (That Could Turn Around)

To understand why the market could rebound this week, we need to first understand what has been driving stock prices lower.

First, we have the issue of rising inflation and higher interest rates.

As prices rise, the Federal Reserve has been raising interest rates. This puts pressure on stock prices — and that’s especially true for growth stocks with small profits today, but potentially large profits in years to come.

The good news is that investors are now fully aware of the inflation risk, and they’ve been adjusting their positions. It’s unlikely inflation data will get worse, and any positive news could be a catalyst for a sharp rebound.

Second, there is the risk of an economic recession.

A recession happens when our economy contracts — typically for two or more quarters.

While there is certainly a risk that the U.S. economy will pull back, that’s actually not the most likely scenario. Instead, economists believe we will have slowing growth.

This is more like a car slowing down on the highway (but not going backward). And if fears of a recession turn out to be wrong, investors could quickly pour capital back into the market.

Third, the market has responded to geopolitical risks.

Russia’s invasion of Ukraine has been tragic, and the personal toll is unimaginable. My heart truly goes out to the families who have lost homes and loved ones.

But investors have had time to adjust to this world event. Prices for oil, natural gas, and various grains have already moved higher. And the world economy is adapting.
 

Stocks Are Now Vulnerable to GOOD News

Now that the markets appear to have already moved in response to these challenges, stocks are more vulnerable to being moved by good news.

We see this scenario happen time and time again.

When most investors are situated on one side of the market (bullish OR bearish), even small bits of news can send the market in the other direction.

Heck, at this point even the absence of bad news could be a catalyst.

Following seven weeks of declines for the broad market, pessimism has become the leading perspective on Wall Street.

It’s a great time to be a contrarian, and Friday’s late-day rebound may be the start of a much more sustainable rally.

Make sure you've invested in quality stocks of companies that turn a current profit! That’s a great way to generate profits in a market full of uncertainty.

Here’s to growing and protecting your wealth!