The S&P 500 (SPY) is up nearly 50% from market lows. This is a sign that easy money is made. The next possible catalyst for stocks will probably be the Fed's first rate cut…but maybe this is really the final push before a delayed sell-off? Tune in to find out 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.
It is clear that the Fed's decision to cut rates is the main catalyst that everyone is waiting for. The next possible chance is on Wednesday May 1ststr.
Since the Fed is “data dependent” (as repeated as a missed record) then we're best focusing on the calendar of upcoming data…and what that tells us about the rate cut decision and the market outlook. Read below for the story full…
Market Commentary
The background is simple. The Fed appears to be successfully steering the economy toward a mild contraction while at the same time easing inflation back toward its 2% target.
As Powell explained at the last meeting, the Fed may actually start cutting rates before they reach the 2% target because rates would still be restrictive after the first cut. Second, there are lagged effects of increased rates, and if you waited until you hit exactly 2% you could actually risk doing unnecessary damage to the labor market (which is the other half of their dual price maintenance mandate sustainable and maximum employment).
Right now, almost no one expects this rate cut to happen on May 1str The meeting after the latest round of inflation data was a little too heated. Thus, just one more serving of monthly inflation data in April would not be enough to make these academics vote with confidence for a rate cut.
Instead, the focus is on whether June 12th will be the starting line for reducing rates. Currently CME calculates it as a 65% probability. But again, this is data that depends on the pronouncement of reports that will develop in the coming weeks … and what Powell shares with the market on May 1.str press conference.
Here are the key economic reports along with some notes to put them into perspective:
3/28 Core PCE- This is the Fed's preferred measure of inflation, which has been 2.0% in the past two quarters. Even better is the non-core reading for the fourth quarter of 1.8%, which is significantly lower than the 2.6% seen in the third quarter. This data should go a long way toward a June rate cut.
4/5 Government Employment Situation: What will be even more important than the number of jobs added will be the wage inflation reading. This was very hot last month at +4.3% year over year. We must continue to see that this contagious form of inflation does not get stuck at this high level. A month-by-month reading will be helpful to gauge the rate of decline. Any monthly increase above 0.2% would indicate unwanted inflationary pressures from wages.
4/10 Consumer Price Index (CPI): This has been well down over the past year, but last month was slightly higher than expected at 3.8% core inflation with 0.4% monthly growth. This should start to move below 3% in the coming months to improve the chances of a downside down the road.
4/10 FOMC minutes: It's hard to imagine more details emerging than the voluminous comments Powell made on March 20th press conference. However, you can imagine that investors will pick at any word to find any data that would point to a possible baseline for rate cuts.
4/11 Producer Price Index (PPI): The least followed of the 3 main inflation reports, but what many economists regard as the leading indicator of where the other reports will trend over time. Note that this is already on target at 2% and bodes well for the continued reduction of PCE and CPI towards that desired level.
5/1 Fed Meeting: 2pm ET is when the press release goes out. And 2.30pm is the even more important press conference with Powell where we get a lot more color commentary. Given the facts at hand, investors are right to be skeptical that a rate cut is happening at this time. The real key is whether they showed improved language that June is in the game.
Trading Plan
We are in a bull market. This is not a shock to anyone.
What is unclear is the pace of future earnings when we are already up 50% in just 1.5 years. Please remember that closer to 8% annual returns is the normal expected return.
I suspect 5,500 tops the S&P 500 (SPY) this year. It means the catalyst for stocks from a rate hike is pretty much already baked in the cake.
This prompted me to write my previous article, Investor alert: “Buy the rumor, sell the news!”
The short version is that I wouldn't be surprised when stocks rally on the rate cut announcement followed by a well-deserved earnings round. Unfortunately, the near term selling… is likely another sell that coincides with the presidential election pattern.
As stated before, this is not a reason to become bearish or conservative. It is best to assume a bull market and general growth until proven otherwise. The key is WHICH stocks will have the most gains.
We know that growth stocks generally lead the parade in the early stages of a new bull market. This is especially clear from the earnings rollover in 2023.
What happens after a growth-oriented phase is a return to value. This makes investors work a little harder to find attractive opportunities. This is where the full 118-factor review of our POWR Ratings model comes in handy.
The model does the heavy lifting by taking this deep dive into the underlying attractiveness of firms. The top 5% are rated A, which explains why it has produced an average annual return of +28.56% since 1999 (almost 4 times better than the S&P 500).
That top 5% is the starting point for our stock selection…then keep training from there to find stocks with the most attractive upside potential.
What top stocks are we recommending right now?
Read below for the answers…
What should be done next?
Discover my current portfolio of 12 stocks filled to the brim with the best returns found in our exclusive POWR Ratings model. (Almost 4 times better than the S&P 500 since 1999)
This includes 5 recently added under-the-radar small caps with tremendous upside potential.
Plus I have 1 special ETF that is incredibly well positioned to outperform the market in the coming weeks and months.
All of this is based on my 43 years of investing experience seeing bull markets… bear markets… and everything in between.
If you are curious to learn more and want to see these 13 hand-picked lucky trades, then please click the link below to get started now.
Steve Reitmeister's Trading Plan and Top Picks >
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 $523.36 per share on Thursday afternoon, up $0.19 (+0.04%). Year-to-date, SPY has gained 10.45%, 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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