The S&P 500 ( SPY ) has been in decline since November 1st, when the Fed started doing their weird tilt opening the door for future rate cuts. Unfortunately, they continue to not happen and the start date keeps getting pushed back further and further. This has many wondering if the stock is moving forward setting things up for a decline. So, a good time to tune in to what investment veteran Steve Reitmeister has to say about the market outlook along with his trading plan and top picks to stay ahead of the pack. Read below for more.
As you may remember from your Lit English classes, sometimes you have to…”Beware of the Ides of March“.
This was 3/15, the date Julius Caesar was assassinated and is often seen as an important checkpoint for investors at this early stage of the new year.
Generally, there is not much to worry about as most of the signs continue to show growth. On the other hand, the S&P 500 (SPY) has risen sharply in recent months where the overall market looks ripe for at least a modest pullback, if not a correction.
This concept and more will be at the forefront of today's market commentary.
Market Commentary
Last week we thought; What would cause a bear market now?
To smooth it out, there are 2 possible causes of bear markets. First, there is a looming recession, which drags down earnings and risks leading to an outright decline in stock prices.
The second precursor to a bear market is the formation of a stock price bubble that becomes volatile. The last time it happened was in 2000 with the bursting of the tech bubble. However, even the most ardent value investor would be hard-pressed to draw any such parallels to current conditions (perhaps some nose-bleed AI stocks that deserve a haircut).
Putting these ideas together, there is not much reason to fear the formation of an imminent bear market. On the other hand, there is no compelling reason for stocks to rise sharply as I shared in my last comment: Is the bull market tired?
The main story there is how the start date for the Fed's rate cut keeps getting pushed back further and further. Please remember that there was a time when people expected this to happen in December 2023. Now we are deleting May 1str and hoping June 12thth is the starting line.
Not helping matters was the hotter than expected PPI report on Thursday morning, where the monthly reading of +0.6% was double the expected level.
On the news, bond rates rose and stocks fell in the session. Plus, the odds of a rate cut coming in June dropped to 60% when just a few weeks ago it was probably over 80%.
I hate to break it to you my friends, but I'd say the chances of a June cut are 50% at best…maybe lower.
That's because if the Fed is “data dependent” as they like to tell us, then the latest data says inflation is still too high. That includes the sticky inflation reading from earlier this week that remains above 4% and is not moving fast enough towards the desired 2% target .
This calls into question whether June is a real possibility when there aren't enough inflation readings in that short period to unequivocally believe that high inflation is dead and buried. This is especially true given the Fed's statements that they would rather cut rates too late than too soon as they don't want any smoldering inflationary embers to reignite.
The most important event in the economic calendar is March 20th The Fed's rate decision along with their quarterly Summary of Economic Projections. No one on the planet expects a rate cut at this meeting. However, they will scour every word in the report…and every statement and facial expression from Powell at the press conference looking for clues as to what comes next.
No doubt someone at the press conference will ask Powell what he meant by the recent statement that rate cuts are “not farHe likely backs that comment with more “data-dependent” and “better late than early” talk, indicating to investors that June may be too early for the rate cut parade.
If true, then this could be the catalyst for the long-awaited pullback from these current highs. Nothing scary. Just a healthy 3-5% pullback after the 25% rally from the October 2023 low.
However, there is no law that says this must happen. Instead, investors can simply continue to sit idle at this red light waiting for the green that will eventually occur when rates come down. This would be what you call a consolidation below 5200 where the market average doesn't move much…but results in sector wide rotation.
Some call it a “rotation correction“Where each sector takes turns being on the way out, even though the overall market indices don't move much. This sector-focused sell-off causes appropriate reductions in excess positions. This is the best way to open the way for the flow the future of healthy growth.
In short, stay Bulgarian. And stay focused on healthy growing companies that are attractively priced. POWR Ratings continues to be your best friend in finding quality stocks.
More on that in the next section…
What should be done next?
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All of this is based on my 43 years of investing experience seeing bull markets… bear markets… and everything in between.
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I wish you a successful investment world!
Steve Reitmeister…but everyone calls me Reity (pronounced “fair”)
CEO, StockNews.com and Editor, Reitmeister Total Return
Shares of SPY were trading at $510.73 per share on Friday morning, down $2.63 (-0.51%). Year-to-date, SPY has gained 7.45%, versus a % gain in the benchmark S&P 500 over the same period.
About the Author: Steve Reitmeister
Steve is better 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 Reitmeister Total Return Portfolio. Learn more about Reity's background, along with links to his latest articles and stock picks.
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