Few occasions are a higher catalyst for inventory value motion than Fed conferences. And the one developing Wednesday 7/26 intently watched by buyers to see if Fed officers are prepared for the lengthy awaiting “dovish pivot”. In that case, then it bodes nicely for the latest S&P 500 (SPY) advance. But when not, and the Fed stays fairly hawkish, then possible shares are prepared for an enormous step again. Get the remainder of the story within the well timed commentary beneath….
This earnings season got here with low expectations. That is making a low hurdle that the majority corporations are having success leaping over permitting the general market to trudge larger.
The following hurdle is on Wednesday July 26th once we get the Fed price choice. The query on everybody’s thoughts is whether or not the Fed is staying on their hawkish inflation combating conflict path…or are buyers proper that they need to be prepared for a pivot to decrease charges ahead of anticipated?
That matter and extra might be on the coronary heart of at present’s Reitmeister Complete Return dialogue.
Market Commentary
First, please make sure to be part of me this Thursday 7/27 for my webinar presentation:
On the final Fed assembly Powell pounded the desk that given the persistence of excessive inflation, Fed officers had been ready to do 2 extra quarter level price hikes. Within the weeks that adopted we obtained served up excellent information on the inflation entrance with a lot decrease than anticipated readings for the July CPI and PPI studies.
But nonetheless coming into the announcement Wednesday 7/26 @ 2pm ET there’s a 99% expectation of 1 / 4 level price hike on the way in which. And here’s what buyers at the moment anticipate at subsequent Fed conferences:
20% probability of one other quarter level at 9/20/23 assembly
44% probability of one other quarter level at 11/1/23 assembly
Then you might have various levels of expectation of charges getting minimize in 2024. Nonetheless, even by June 2024 you might have nonetheless have greater than 38% odds of charges at a really hawkish 5% or above.
This continues to have charges inverted which is traditionally among the best predictors of a future recession. Ycharts has a US recession chance chart based mostly on this idea that at the moment stands at 67% odds of recession forming over the subsequent 12 months.
But even in mild of that ominous image, the S&P 500 (SPY) is on a robust run. That’s as a result of we have now all heard about the opportunity of recession…which retains NOT taking place. This has created a formidable FOMO rally that’s pressuring these with a bearish bias to surrender hope.
Will that rally proceed after the Fed assembly?
The reply to that will depend on whether or not the Fed agrees with buyers in regards to the accelerating enchancment on the inflation entrance present in July’s CPI & PPI studies. Or do they proceed to see inflation as too sticky in locations like labor and shelter and thus wish to hold elevating charges to place a stake by way of the guts of excessive inflation as soon as and for all?
Any dovish tilt of their language might be celebrated with extra shopping for exercise. However given that is totally anticipated, as confirmed by the robust operating rally in hand, then a hawkish Fed sticking to their weapons may spark an extended overdue pullback.
No…not return to the bear market. Not a full blow correction both. Only a wholesome pullback of 3-5% the place a few of the latest extra earnings are taken off the desk.
This isn’t a tradable occasion. So long as we’re above the 200 day shifting common, then no should be out of shares.
Reasonably, it creates a buying and selling vary surroundings the place of us with a notable benefit can nonetheless squeeze out earnings. And sure, our reliance on the POWR Rankings is a confirmed benefit that ought to proceed to maintain us in good stead.
Worth Motion
As famous above, and shared in my 2023 Classes Discovered commentary from final week, we might be simplifying our market timing strategy. That’s completed by a concentrate on the 200 day shifting common for the S&P 500 (SPY).
Plain and easy we might be bullish above that mark and bearish beneath.
You possibly can see how robust the latest bull run is by seeing how far above the 200 day shifting common (purple line) we’re on the present time. However even the 50 day (yellow) and 100 day (orange) are fairly beneath the present motion.
As famous a bit of earlier, a stubbornly hawkish Consumed Wednesday may spark a fairly regular 3-5% pullback. That will nonetheless have us nicely above the 100 day with little motive to worry of additional draw back to come back.
Nonetheless, if the Fed stays hawkish + fundamentals start to darken exhibiting the recession could also be nearer at hand…then I could not wait til we get all the way in which all the way down to the 200 day shifting common earlier than taking extra defensive maneuvers.
No, I can’t be getting brief except we’re beneath the 200 day shifting common. However certainly may put a bit more money on the sidelines if these darkish storm clouds begin to type.
Till then it’s honest to imagine we’re nonetheless very a lot in a bullish surroundings. Simply imagine that buyers ought to take some revenue on the Magnificent 7 and different overpriced AI/tech shares and put that cash to good use in additional attractively priced investments. And that creates an excellent segue to the subsequent part…
What To Do Subsequent?
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That is all based mostly on my 43 years of investing expertise seeing bull markets…bear markets…and all the things between.
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Steve Reitmeister…however everybody calls me Reity (pronounced “Righty”)
CEO, StockNews.com and Editor, Reitmeister Complete Return
SPY shares . 12 months-to-date, SPY has gained 19.99%, versus a % rise within the benchmark S&P 500 index throughout the identical interval.
Concerning the Creator: Steve Reitmeister
Steve is healthier recognized to the StockNews viewers as “Reity”. Not solely is he the CEO of the agency, however he additionally shares his 40 years of funding expertise within the Reitmeister Complete Return portfolio. Be taught extra about Reity’s background, together with hyperlinks to his most up-to-date articles and inventory picks.
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