In 1970s Redux?, we recently took a look at the long "plateau" periods the stock market periodically goes through between big, secular bull markets. The key chart from that article was this one:

Anybody feeling tired yet?

As we enter the eighth month of this bear market, I'm feeling the exhaustion creeping in. That's amplified by the fact that we've had this head-scratching rally that keeps...running...higher, which is painful when we're largely positioned for more downside.

So while there are a hundred little details I'm tempted to delve into, I'm going to do my best to keep this focused on the big picture.

There is one change to the DAA lineup for August. Read on for the full details.

DAA is a core portfolio strategy designed to help SMI readers share in some of a bull market’s gains, while minimizing (or even preventing) losses during bear markets. The strategy involves using exchange-traded funds to rotate among six asset classes, holding three at any one time.

DAA is a defensive, low-volatility strategy that nonetheless has generated impressive back-tested results when evaluated over full market cycles, demonstrating the power of "winning by not losing."

The recommended categories/ETFs for August are (in order of current momentum):

There is no change to the official SR recommendation for August. Read on for the details.

Sector Rotation is a high-risk/high-volatility strategy. While its peaks and valleys have been more extreme than SMI's other strategies, it has generated impressive long-term returns, as discussed in Sector Rotation is Risky, But Highly Rewarding and A Great Strategy Gets Better: Inside Recent Sector Rotation Changes.

The first half of 2022 generated many “worst since...” statistics, as both stocks and bonds suffered their worst start in many years. Compounding the pain for most investors was the fact that bonds, relied upon to provide ballast within balanced portfolios, fell sharply as interest rate expectations accelerated rapidly higher. Some measures indicate that bonds are having their worst year in U.S. history, dating all the way back to the birth of the Republic!

As SMI suggested in our January 2022 cover article, high and persistent inflation has pushed the Fed to tighten financial conditions, despite concerns about slowing economic growth. A traditional 60% stock/40% bond portfolio lost –16.1% in the first half of 2022, the worst performance for such a portfolio in the past 47 years (as far back as reliable bond index data exists). The prior worst first half for such a 60/40 portfolio was –6.7% in 2008, which offers a sense of how much worse this year has been for most investors than anything they’ve experienced before.

Thankfully, SMI investors have had a very different experience. As the Year-to-Date column of the nearby table shows, each of the SMI strategies has reduced losses considerably relative to the market during 2022’s first half.

But even more importantly, consider the second column of the table. This column shows how each strategy has performed since Jan. 27, the date when the first defensive adjustments were made to the SMI strategies.

The S&P 500 index didn’t peak until Jan. 4, which meant that the SMI strategies began 2022 in a relatively aggressive posture. Since making those first adjustments toward the end of January, SMI investors have had a radically different experience than most other investors. As the table shows, a 50-40-10 blend of SMI strategies lost roughly one-tenth that of the broad market after that point!

That’s not to say SMI investors will be immune to any further losses from this bear market. For example, in June/July, our positions in commodities and energy stocks — which had excelled most of the year — finally broke down, causing losses (or at least eating into previous gains).

But these returns clearly illustrate that the SMI process has been working through the first six months of this bear market. Given the vast improvement relative to the broad market since the defensive adjustments started kicking in at the end of January, there’s every reason to believe SMI investors will continue to outperform for the duration of this bear market.

Soaring energy prices. Relentlessly rising inflation. Slowing economic growth. A stock market coming off a long period of impressive gains, led by a group of seemingly invincible growth giants. To veteran investors, it’s starting to feel like the 1970s again.

With so many emerging similarities, it’s become popular to speculate that the current market could be headed for a repeat of the 1966-1982 period. It’s not as much of a stretch as you might think.

It’s been nearly five years since the last SMI price adjustment, but the dramatically escalating costs associated with... well, everything... the past couple of years have forced our hand. As a result, beginning Sept. 1 the cost of a Premium Membership will increase to $199.95 per year (or $19.95/month) and the cost of a Basic Membership will increase to $119.95 per year (or $11.95/month).

We have always viewed SMI as a ministry first and a business second. As a result, we try hard to keep our prices affordable. Our pricing has changed only a handful of times over the past 32 years, even as “what you get for the money” has steadily expanded.

You don’t need to do anything, as the new amount will be automatically applied with payments starting Sept 1. Of course, if you want to upgrade from Basic to Premium, from monthly to annual, or simply renew your membership before the Sept. 1 increase, you are welcome to do so.

We appreciate you and thank you for understanding.

While investor attention continues to pivot away from inflation and toward recession (see Monday's video), inflation remains a very significant piece of the investing puzzle. The Fed is clearly still fixated on it, which means investors better continue to pay attention, as Fed policy remains one of the most important factors influencing asset prices.

When June's 9.1% annual inflation increase was announced last week, the White House was quick to point out that the number was already outdated due to energy prices having fallen substantially already in July. That's a fair point — AAA announced last week that the average price for gasoline in the U.S. had fallen from $5.00/gallon a month ago to $4.60. A decline approaching 10% in a key spending category is a big deal.

Today's inflation report was pretty brutal across the board.

The headline number was the year-over-year increase in CPI (consumer price index) of 9.1%, the highest in 41 years. That takes us back to 1981 and the heart of the legendary inflation problem and sky-high interest rates which finally broke its grip. Not the kind of company one wants to keep.

The monthly number was arguably worse, not in its historic scope, but in terms of its implications. That's because with the annual figure, it's easier to argue over "base effects" and the impact of changes since the starting point a year ago. But with the monthly number rising 1.3% in June after being up 1.0% in May, it's harder to make any argument that inflation is decelerating. It's not, it's still accelerating.

The monthly increase in CPI was the worst since September 2005, so at least that's not quite as devastating a comp as the annual figure. The only other silver lining, such as it is, is that surging energy prices accounted for a big portion of the increase, and energy prices have fallen markedly over the past month. So there's at least hope that lower energy prices will translate into relief soon for that monthly measure.