Stocks keep flirting with the all time highs for the S&P 500 (SPY) and keep falling short. Meaning that is proving to be a stubborn level of resistance at 4,800. Why is that occuring? And when will stocks finally break above? 43 12 months investment veteran Steve Reitmeister shares his view including a preview of his favorite stock picks now. Read on below for the answers.
As suspected, the market will not be able to make latest highs above 4,796 for the S&P 500 (SPY).
That was quite evident Thursday as stocks jumped away from bed within the morning to the touch those previous highs only to search out stubborn resistance with the broad market heading lower from there.
Why are stocks struggling at this level?
And what’s an investor to do about it?
The answers to those vital questions shall be at the center of today’s commentary.
Market Commentary
Some investment writers may have a reasonably short hand, and highly inaccurate, solution to describe what happened on Thursday.
They may inform you that the CPI inflation reading was hotter than expected on Thursday morning. And that caused the stock market dump that followed.
That is just not true.
Here’s what really happened. The CPI report got here out an hour before the market open. And yet still the market leapt higher out of the gate. But once it touched the hem of the previous highs (4,796) a greater than 1% intraday dump that ensued.
That pain will not be so evident within the late session bounce and modest loss for S&P 500. Yet is quite a bit more apparent within the -0.7% showing for the small caps within the Russell 2000 on the session.
Thus, the issue for lack of further stock advance will not be about CPI report. Just a press release that investors will not be prepared to breakthrough resistance to make latest highs.
So, what’s holding stocks back?
I discussed that in greater detail in my last commentary: When Will the Bull Market Run Again?
The essence of the story is that investors have less clarity on the following moves for the Fed than that they had after the November and December meetings that sparked an amazing end of 12 months rally. Unfortunately, there was a mixed bag of inflation and economic data that calls into query when rate cuts will begin.
On the earliest those cuts could come on the March 20th meeting. But I sense that the more readings we get like Thursday’s CPI report, or last Fridays stronger than expected employment report…the more likely those first cuts get pushed off to either the May 1st or June 12th Fed meetings.
Digging into the CPI reading we discover that inflation was expected to are available at 3.1% yet spiked to three.4% on this reading. Core CPI was even worse at 3.9% 12 months over 12 months. Just still too far-off from the Fed’s goal of two%.
For the “wonks” on the market you need to dig into the Sticky Price resources created by the Atlanta Fed. To place it plainly, sticky inflation stays too sticky. The major elements are housing and wages that will not be coming down as quickly as expected.
Whenever you appreciate the conservative nature of the Fed…and that they state over and yet again that they’re “data dependent”, then its hard to take a look at the recent data and assume they’re able to lower rates any time soon.
Long story short, I don’t think that investors are ready for the following bull run to make latest highs until they’re more certain WHEN the Fed will finally start cutting rates. That delays the following upside move to March 20th on the earliest with May or June becoming all of the more likely.
Hard to complain about settling right into a trading range for some time given the tremendous pace of gains to finish 2023. So this looks like an inexpensive time for stocks to rest before making the following big move.
The upside of the present range connects with the aforementioned all time high of 4,796…but really easier to think about the lid as 4,800.
On the downside, that could be a bit harder to infer. Typically trading ranges are 3-5% from top to bottom. So, for quick math let’s say around 4,600 on the underside. This also represents the previous resistance point that took a protracted time to finally break above in early December.
The excellent news is that I expect quality stocks to prevail even in a variety sure market. Meaning that last 12 months just about any piece of beaten down junk was bid higher. That party is OVER!
As a substitute, when you’ve gotten a reasonably fully valued market as we’ve got now, then there shall be a greater eye towards quality of fundamentals and value proposition. I spelled that out pretty completely in last week’s article: Is 2024 Prime Time for Value Stocks?
The reply to the query posed within the headline is…YES. Meaning that 2024 is lining up nicely for value stocks.
Working example being the early results this 12 months with our Top 10 Value strategy up +3.70% through Wednesday’s close vs. breakeven for S&P 500 and -2.80% for the small caps within the Russell 2000.
I strongly consider that edge for value will proceed because the 12 months rolls on. And the perfect solution to reap the benefits of that’s spelled out in the following section…
What To Do Next?
Discover my current portfolio of value stocks packed to the brim with the outperforming advantages present in our exclusive POWR Rankings model.
This includes direct access to our Top 10 Value Stocks strategy that’s hot out of the gates in 2024 with plenty more room to run.
For those who are curious to learn more, and need to lean into my 43 years of investment experience, 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 were trading at $475.88 per share on Friday afternoon, down $0.47 (-0.10%). Yr-to-date, SPY has gained 0.12%, versus a % rise within the benchmark S&P 500 index through the same period.
In regards to the Creator: 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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