The story playing out on Wall Street right now would be funny if trillions of dollars weren’t riding on the outcome. JP Morgan economists says it as clearly as they can: “we do not think a recession is imminent.” Their bankers agree.

And yet their market strategists concede that stocks are now priced for 85% odds that a recession is already underway. Same assumptions, same top-down view of the world. Two opinions that actively contradict each other.

Maybe in your gut you agree with the strategists that the economy is collapsing around the Fed. In that scenario, a buy-and-hold portfolio might be dead money for weeks or even months to come.

I’m not going to try to change your mind. But even in a recession . . . even in the worst bear markets in history . . . retreating to the sidelines is only a way to shield whatever you have from potential losses. If you want to actively build wealth, there’s no reason to settle for the buy-and-hold portfolio.

Run Faster To Avoid Falling Behind

Let’s say for the moment that JP Morgan’s economists and bankers are wrong, the stock market is right and we’re already in the early grip of a deep recession, with mass layoffs, consumer bankruptcies, deteriorating corporate profits and commercial credit defaults looming on the horizon.

Under those circumstances, stocks probably have more room to fall from already depressed levels. Not a lot of people are eager to take that ride unless they’re confident that the rebound will be big enough and fast enough to make it all worthwhile.

However, when you get off any ride as an investor, you’re effectively buying a ticket for another. Selling your stocks gives you cash, which is deteriorating at a rate of 8% a year right now until the Fed gets inflation under control.

Hide on the sidelines in cash, and you’re not going to make any money. Even if the Fed gets everything it wants, you’re looking at losing $4 in purchasing power in the next six months for every $100 you have in the checking account today.

CDs and other interest-bearing products only dull the pain a little. While the FDIC ensures that your nominal dollars are protected, factoring for inflation still means you’re guaranteeing that you’ll end up with a significant real loss .  . and the longer you hide out, the more time inflation has to work and bigger that loss gets.

Some people can afford that and even look at it as the price they pay for safety. I don’t think a risk-free life is worth the constant subtle drain on your resources, but if you have the money into the bank, slow attrition can be a viable strategy.

The rest of us don’t have that luxury. Normally, bonds will at least pay enough interest to compensate for inflation and give you back your money when they mature. That’s why they’re such a good haven when the stock market is in a bad mood.

Right now, however, you won’t find much of the traditional cushion there. If you’re worried that the S&P 500 is in bad shape, don’t forget that this looks like the worst year for Treasury bonds since 1848 . . . and that means dumping stocks for bonds isn’t likely to give you much relief.

You definitely won’t make money until inflation dips below the yields you’ve locked in. All you’re doing is slowing your losses.

If you’ve found an asset class that’s keeping up with inflation and has the potential to actually create capital gains down the road, feel free to get in touch and let me know. In the meantime, the rest of us have to accept that the stock market as a whole has been a wild ride and will remain volatile . . .

. . . but the right individual stocks still present an attractive risk-return profile, even if there’s a recession on the way.

Always Be Trading

For those of us who want to make money in the market and use every day Wall Street gives us, it’s worth remembering that every bear market contains endless opportunities to exploit the downside as well as the fleeting rallies.

Nobody is forcing you to be a buy-and-hold investor if you want to rack up profits in the here and now. The buy-and-hold mindset is best reserved for institutional investors, people like Warren Buffett and workers with decades left to fill their retirement accounts before they need to start cashing out.

Options trading is a great way to keep cash working even if the market is lurching into bear territory. So far this year, the S&P 500 is down 24% from its high . . . a gloomy five months and counting.

My 2-Day Trader has bought and sold 29 options contracts over that timeline. Some have been big wins and others have been big losses, but the net impact averaging all our 2022 exits together has moved the profit bar 3.11% per trade.

Compound that number if you like or simply look at it in isolation, but the impact is similar either way. I’d rather take even a few points of progress against a 24% decline. Who wouldn’t?

Admittedly, options trading is a little more work. There’s a learning curve. I teach my people how it works and show them exactly what to buy and when to buy it.

Again, some of these trades are big losers, but the big wins have more than made up for it. As long as you stay in the game, the statistics have added up in our favor.

And we don’t always exploit the downside there, either. Only 13 of our YTD trades on 2-Day Trader have been puts designed to become more valuable as various corners of the market weaken. They’ve done spectacularly well.

But when the market mood circles around, the calls take over. We’ve taken multiple 15-20% wins on that side . . . against an environment where buy-and-hold investors can’t do anything but grit their teeth and bear it.

I’m not bragging. I’m trying to inspire you. If we can do it, you can too.

What I like about options is the way money keeps circulating even when buy-and-hold portfolios are deep underwater and unlikely to improve for the foreseeable future. You’re not wasting time. If you do it right, you’re moving forward to achieve your goals.

My High Octane Trader is a slightly different options trading framework and my people there are up 11% per trade there YTD. We just cashed Trade 24 last week for “only” 7.8%.

Statistically, we expect the S&P 500 to take a full year to earn a net 8-11% for buy-and-hold investors. Trade 24 was on the books June 13 and left in two days. And we do it again and again and again.

Maybe you don’t like options but still want to keep your money working. Pick the right stocks and trade the swings. Again, the point is not to crow about my expertise but simply to provide an example of the things that are possible . . . even in a bear market.

And what if the lenders and economists at JP Morgan and other banks are right? What if the Fed somehow manages to guide us all in for a soft landing?

Suddenly stocks priced for a recession look cheap. We’ll see the bulls run with relief, and then there’s zero reason to hang out on the sidelines at all.