The late 2023 rally is now over with stocks taking a step back in the recent yr. Some consider there are signs that stocks could also be able to break to recent highs for the S&P 500. Nevertheless, investment veteran Steve Reitmeister believes that will not occur til the spring with a trading range forming now. Below he spells out why including a preview of his top 13 trades. Read on below for more.
Given the intensity of the November/December bull run…it only made sense for investors to take a step back to begin 2024.
Now just per week later, investors seem able to buy that modest dip with the all time highs for the S&P 500 (SPY) of 4,796 once more in sight.
Are investors able to break higher…or will 4,796 prove to be stubborn resistance a great while longer?
That and more will probably be at the heart of this week’s Reitmeister Total Return commentary.
Market Commentary
To begin the yr there was numerous profit taking and price reversals across the investment spectrum.
This was obviously true with the stock market. Especially the big name tech stocks giving up a small chunk of their tremendous gains from 2023.
This could easily be understood as a method to delay the tax consequences of those capital gains for an additional yr. But that wasn’t the only group reversing course.
Let’s do not forget that the foremost catalyst for the late 2023 stock rally was the tremendous decline in bond rates as the Fed finally looked prepared to lower rates in the recent yr. This had the 10 yr rate tumbling from 5% to under 3.8% in the final couple months.
So, when bond investors took some profits off the table with 10 yr rates bouncing back over 4%…that too was yet another excuse for the early 2024 stock market declines.
That was then…that is now with stocks bouncing back the previous couple of sessions pushing back towards the all time highs 4,796.
There may be little doubt that stocks will break above sooner or later this yr. That is because the prospect of lower rates starting in 2024 looms large as a catalyst for corporate earnings growth and due to this fact stock prices.
But WHEN that happens is a little bit of a mystery that got more complicated last Friday after the release of the Government Employment Situation report.
Not only did job adds are available in higher than expected at 216K jobs added versus 150K expected, but in addition wage inflation stayed too hot at +4.1% yr over yr (above consensus). Even worse was the month over month reading at +0.4% which speaks to the pace of increases closer to five% annualized.
The Fed shouldn’t be going to love these figures of their fight against high inflation. Not that they’d necessarily raise rates again…but perhaps dig of their heels at the current restrictive level longer than investors anticipate.
This got here through loud and clear with the changes to odds for when rates will likely be cut as measured by the CME.
The March 20th Fed meeting was the one which investors expected the first rate cuts to flow in. That has been cut from 89% likelihood per week ago to 61% today.
Interestingly, not the whole lot is rainbows and lollipops with the economic data. The manufacturing sector continues in contraction territory as will be seen by the recent 47.4 reading for ISM Manufacturing. Actually, the sector has not grown in response to this report since mid 2022.
More interestingly, ISM Services was lighter than expected with the employment reading showing the most pain dropping from 50.7 to 43.3. Keep in mind that below 50 points to contraction. And that is the worst showing for this reading in an extended, very long time.
With services previously being the healthiest a part of the economy, this may be very interesting clue that things is perhaps slowing greater than expected.
What we don’t desire is heading right into a recession which shouldn’t be all the time so speedily solved by Fed rate cuts. Meaning making a recession is akin to opening up Pandoras box…very hard to get the monsters to quietly return in the box.
What we do want is modest signs of a slowing economy to maintain reducing inflation back to the 2% goal. And that might compel the Fed to chop rates, thus boosting the economy and leading the charge back for earnings growth and stock prices.
Price Motion and Trading Plan
My prediction is that stocks is not going to break above the all time highs at 4,796 in a meaningful way until investors are convinced the Fed is really going to lower rates. With that unlikely to occur at the January 31st announcement then it has investors putting their sites on the March 20th event.
Again, investors are currently putting the odds of that first cut in March at somewhat over 60%. But with Fed officials still putting out hawkish rhetoric…and a few parts of inflation, like the aforementioned sticky wage inflation issue, then indeed the first rate cut will not be til May or June.
That may cap the upside for the overall market. Which shouldn’t be so terrible given the above average gains we enjoyed last yr.
The excellent news is that quality stock pickers can all the time find firms able to sprint ahead no matter overall market conditions. And we’re already finding that to be the case with the POWR Rankings narrowing in on the top stocks primed to outperform.
To be clear, the Buy & Strong Buy rated stocks in our model, top 25%, still amounts to over 1,300 stocks. Yes, a smaller selection than the over 10,000 US stocks you may put money into. But still too many stocks for the average person to research properly to narrow right down to the ones which are best to your portfolio.
That’s the reason I actually have put in the time for my Reitmeister Total Return service to narrow down the field to the 11 best stocks to own now. Plus 2 ETFs which have the right stuff to outperform in the weeks and months ahead.
More about those select picks in the next section…
What To Do Next?
Discover my current portfolio of 11 stocks packed to the brim with the outperforming advantages present in our exclusive POWR Rankings model. (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 actually have chosen 2 special ETFs which are all in sectors well positioned to outpace the market in 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.
When you are curious to learn more, and wish 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 fell $0.22 (-0.05%) in after-hours trading Tuesday. 12 months-to-date, SPY has declined -0.30%, versus a % rise in the benchmark S&P 500 index during the same period.
About 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 in 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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