The S&P 500 (SPY) continues to impress on this recent bull run. Yet the extent of 5,000 is almost 50% above the bear market lows and plenty of value investors are saying that stocks are getting expensive. So will stocks race above 5,000 or will this level prove to be an extended red light? 43 yr investment veteran Steve Reitmeister shares his views within the commentary below together with a preview of this top 12 stocks to purchase at the moment.
There isn’t a surprise that the market is flirting with 5,000 for the S&P 500 (SPY). Just too attractive of a level not to achieve at the moment.
The issue is that this can be a very hole rally like we saw for nearly all of 2023 where just about all the gains were accruing to the Magnificent 7 mega cap tech stocks.
Unfortunately, the overwhelming majority of stocks are literally within the red which might best appreciated by the loss for the Russell 2000 index in the brand new yr.
Let’s discuss what this implies for the market outlook and the way we still chart a course to outperformance in the times and weeks ahead.
Market Commentary
Thursday offered the primary attempt for stocks to interrupt above 5,000. In actual fact, the index got to 4,999.89 late within the session before resistance kicked in.
Friday was much the identical floating just under that 5,000 level. Taking little shots here or there. Yet on the close it fell short once more.
In the long term stocks will climb well above 5,000 as most bull markets last over 5 years and we’re still on the very early stages of this bullish phase. That shouldn’t be the present contemplation. Moderately it’s about how long it’ll take to breakout above 5,000?
I explored this idea in my previous article: Are Stocks Stuck til Summer?
The reply to the above query is YES…I feel that 5,000 will prove to be a solid lid on stock prices until the Fed starts lowering rates.
No…I’m not calling for a correction like some commentators. Perhaps a 3-5% pullback ensues then we play in a variety of 4,800 to 5,000 until we get a green light from the Ate up lower rates. That is what would give investors a superb reason to step on the gas pedal attaining recent highs above 5,000.
At once, I sense we’ll just be idling at a red light. Changing the radio station. Sneaking a fast peek at our phones. Looking at people in other cars. Etc.
But once the Fed lowers rates it means more rate cuts are to follow which increases economic growth > earnings growth > stock prices. On top of that lower bond rates makes stocks the more attractive investment by comparison.
This chain of events is the clear green light for stocks to race ahead. Until then I feel that many will likely be frightened about how long the Fed will sit on their hands. Many are already surprised they’ve waited this long.
Nevertheless, once you take a look at the Fed’s long run track record where 12 of 15 rate hike regimes have led to recession, then you definitely start to understand that these guys often overstay their welcome with rate hikes.
Let’s not forget that there are also 6-12 months of lagged effects on their policies so even when the economy looks OK on the time that rates are cut it remains to be possible for a recession to form.
That shouldn’t be my base case at the moment. I do sense that this Fed has a greater appreciation of history and is managing the twin mandate of moderate inflation and full employment quite well. Meaning that I believe a soft landing is the probably final result, followed by acceleration of the economy…corporate earnings…and yes, share prices.
The purpose is that the Fed policies are at the middle of investment equation at the moment. And the important thing to understanding what the Fed will do is keeping track of economic developments. Particularly, inflation and employment metrics.
At once, employment is kind of healthy…possibly too healthy for the Fed’s liking. Not only the surprisingly high 353,000 jobs added last month, but in addition the eerily high wage inflation readings that spiked as much as 4.5% yr over yr.
Little question the Fed shouldn’t be keen on this sticky type of wage inflation and would love to see more easing of that pressure before they begin lowering rates. The following reading of wage inflation will likely be on Friday March 7th.
Before that point, we’ll get the subsequent round of CPI (2/13) and PPI (2/16) inflation readings. Those have been moving in the proper direction for a while. In actual fact, PPI is the leading indicator for the more widely followed CPI, was all the best way right down to 1% inflation rate ultimately months reading.
For nearly as good as that’s, the Fed shouldn’t be as keen on CPI and PPI as traders are. They like readings from the PCE inflation reading which does not come out til 2/29.
But really they’ve much more sophisticated ways of reading inflation which might higher be appreciated by the Sticky-Price CPI monitoring done by the Atlanta Fed.
Because the chart below shows, Sticky Inflation (orange line hovering around 5%) is, well, too darn sticky at the moment. Meaning that academics and economists on the Fed are likely concerned that inflation remains to be too persistent and that more patience is required before lowering rates.
To sum it up, I believe that 5,000 will prove to be some extent of stiff resistance for some time. This could result in an prolonged trading range period with investors awaiting the green light from the Fed to start out lowering rates.
Yes, it’s all the time possible for stocks to race ahead without this clear go ahead by the Fed. That’s the reason its clever to remain in a bullish posture to benefit from the gains at any time when they unfold.
I’m saying to simply not be that surprised if we do not proceed to rise given 3 straight months of very bullish conditions coupled with facing an obvious place of stiff psychological resistance at 5,000.
At this stage the Magnificent 7 have had their fun. I would not be surprised if some profits are taken there and shifted to smaller stocks. What you may call a sector rotation or change in leadership. There was some good signs of that beginning to be the case on Thursday because the Russell 2000 rose +1.5% on the session while the massive cap focused S&P 500 hovered around breakeven.
Also, I believe there will likely be a greater eye towards value as many market watchers are mentioning that earnings growth is muted and thus at this level the general market is pretty fully valued. That is particularly true for the Magnificent 7 that no value investor could stomach their exorbitant multiples.
This too calls for a rotation to recent stocks which are more deserving of upper prices. It’s precisely these sorts of “under the radar” growth stocks trading at reasonable prices that I cherish.
To find which of them I’m recommending in my portfolio now, then read on below…
What To Do Next?
Discover my current portfolio of 12 stocks packed to the brim with the outperforming advantages present in our exclusive POWR Rankings model. (Nearly 4X higher than the S&P 500 going back to 1999)
This includes 5 under the radar small caps recently added with tremendous upside potential.
Plus I even have 1 special ETF that’s incredibly well positioned to outpace the market within the weeks and months ahead.
That is all based on my 43 years of investing experience seeing bull markets…bear markets…and the whole lot between.
In the event you are curious to learn more, and need to see these lucky 13 hand chosen trades, then please click the link below to start now.
Steve Reitmeister’s Trading Plan & Top Picks >
Wishing you a world of investment success!
Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
CEO, StockNews.com and Editor, Reitmeister Total Return
SPY shares rose $1.33 (+0.27%) in premarket trading Friday. Yr-to-date, SPY has gained 5.12%, versus a % rise within the benchmark S&P 500 index throughout the same period.
Concerning the Writer: Steve Reitmeister
Steve is best known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience within the Reitmeister Total Return portfolio. Learn more about Reity’s background, together with links to his most up-to-date articles and stock picks.
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