Stocks have found a bottom after a nasty 3 month correction. Helping matters was statements by Fed Chairman Powell on Wednesday with stocks roaring higher ever since including a decisive break above the 200 day moving average for the S&P 500 (SPY). Little question we wish to know what this implies for our investing plans within the weeks and months ahead. That’s the reason Steve Reitmeister shares his market outlook and preview of his top 9 picks for today’s market. Read on below for the complete story.
Stocks have bounced from bottom and now convincingly back above the 200 day moving average with Thursday’s impressive +1.89% gain for the S&P 500 (SPY).
The rationale for this bullish leg was investors “reading between the lines” of the Wednesday Fed announcement that they appear reluctant to lift rates again. That increases the chances of lower rates ahead which is music to the ears of stock investors.
But is that basically what the Fed has in mind?
And what if the recent lowering of bond rates is often because investors see a softening of the economy which will devolve right into a recession?
That and more is on the docket for today’s commentary.
Market Commentary
The Fed announcement on Wednesday is the central story for investors. They decided to go away rates unchanged for a second straight meeting. Thus, the actual market moving news got here from Powell’s press conference. The fast summary just isn’t much change from the trail. Perhaps a bit nuance in among the responses I outline below.
Powell stated that just a few good months of inflation data is only the start. More work to be done. What’s unclear is whether or not that can require more rate hikes or if rates are properly restrictive to get inflation back to trend and just need them in place for an extended time frame.
Further they still imagine that an eventual softening of the economy and job market could have to point out up before the job of taming inflation is finished. Not necessarily a recession…still shooting for that magical soft landing (often easier to say than to do).
Powell was emphatic on this point: NO TALK OF RATE CUTS.
They are only still focused on getting inflation right down to 2% goal and the way far more time and/or rate hikes are needed to get there. But yes, they’re seeing the advantages of their previous moves at work. Just takes time to totally see those affects play out.
Stock prices immediately doubled their gains from the time of the press conference til the tip of the session. This is sensible as you appreciate that 10 Yr Treasury rates moved further below 5%. That features a further drop to 4.66% on Thursday which was an enormous catalyst for more stock gains.
Also interesting is testing the FedWatch tool by the CME measuring the chances the market is laying on future Fed meetings. For instance, the thought of a rate hike at the subsequent meeting on 12/13 was almost cut in half to simply 19.8%.
The oddity we’d like to think about is that the lowering of bond rates may very well be due to a weakening of the economy. Yes, that tames inflation. And yes, that results in a lowering of Fed funds rates. But additionally equates to lower corporate earnings and lower share prices. That’s the reason its essential to maintain an in depth eye on the economic activity right now.
That starts this week with the ISM Manufacturing that was form of ignored on Wednesday because the Fed took center stage. Yet, as foreshadowed by the weak Chicago PMI report on Tuesday, indeed the national ISM Manufacturing survey on Wednesday showed softening of business trends because the reading slipped from 49.0 to 46.7. Even worse the forward looking Latest Orders component was even lower at 45.5.
Friday mornings Government Employment Situation report also pointed to slowing trends with 150K jobs added when 190K was expected. This also got served up with signs of moderating wage inflation at only +0.2% month over month which is ebbing ever closer to the two% annualized goal of the Fed.
Stocks jumped premarket Friday on the above news because it is straight away seen as a “Goldilocks report. Not too hot to lift inflation. Not too cold to point to recession. But with employment being a lagging indicator, and 150K jobs added being one in every of the bottom readings in a protracted time, then not hard to assume it getting weaker from here.
For now stocks have found an interim bottom. It would stay that way so long as bond rates stay at this level or below…and so long as the economy avoids recession. Add to that the everyday bullish bias in the course of the holiday season (aka Santa Claus rally) then likely the general market is prone to move higher from here til the yr end.
Not necessarily gung ho bullish like the previous couple of session. More of an upward bias perhaps getting back to towards a variety of 4,400 to 4,500 by years end.
Simply to be clear, if the chances of recession and bear market increase, then investors won’t care what time of yr it’s. Thus, we’ll lean bullish for now, but keep an in depth eye on the economic picture in case there may be a reason to get more cautious in our outlook.
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Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
CEO, StockNews.com and Editor, Reitmeister Total Return
SPY shares were trading at $433.90 per share on Friday morning, up $3.14 (+0.73%). Yr-to-date, SPY has gained 14.72%, versus a % rise within the benchmark S&P 500 index in the course of the same period.
Concerning the Writer: Steve Reitmeister
Steve is healthier 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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