The S&P 500 Index (SPY) has been rising sharply since November 1, when the Fed began adopting an accommodative stance, opening the door to future rate cuts. Unfortunately they still don’t happen and the start date keeps getting pushed further and further back. This has led many to wonder whether stocks are getting ahead of themselves, setting things up for a downturn. So it’s a good time to tune in to what investing veteran Steve Reitmeister has to say about the market outlook along with his trading plan and top picks to stay ahead of the rest. He continues reading below for more information.
As you probably remember from English literature class, sometimes you have to…”Be careful on the Ides of March“.
It 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.
Overall, there is not much to pay attention to as most signals continue to point to the upside. On the other hand, the S&P 500 (SPY) has rallied significantly in recent months, when the overall market appears 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.
Comment on the market
Last week we contemplated; What would cause a bear market now?
To summarize, there are 2 probable causes of bear markets. First, there is a looming recession that drags down earnings and risk-taking, leading to a radical cut in stock prices.
The second precursor to the bear market is the formation of a stock price bubble that becomes unsustainable. The last time this happened was in 2000, with the bursting of the tech bubble. However, even the most ardent value investor would be hard-pressed to draw such parallels to current conditions (perhaps some bleeding AI stocks that deserve a haircut).
Putting these ideas together, there is little reason to fear the looming bear market formation. On the other hand, there is no great reason for stocks to push significantly higher, as I shared in my last comment: Is the bull market getting tired?
The main story is how the start date for Fed rate cuts keeps getting pushed further and further back. Remember there was a time when people expected this to happen in December 2023. Now we are canceling May 1stst and HOPEFULLY on June 12thth It’s the starting line.
Not helping matters was Thursday morning’s warmer-than-expected PPI report, where the month-over-month reading of +0.6% was double the expected level.
With this news, bond rates rose and stocks fell during the session. Furthermore, the probability of a rate cut coming in June has been reduced to 60%, whereas just a few weeks ago the probability was above 80%.
I hate to break it to you my friends, but I would say the chances of a cut in June are 50% at best…probably lower.
This is because if the Fed is “data dependentAs they like to tell us, the latest data says inflation is still too high. That includes the sticky inflation reading from earlier in the week that remains above 4% and isn’t moving fast enough toward the desired 2% target. .
This calls into question whether June is a real possibility when there isn’t enough inflation data in that short period to unequivocally believe that high inflation is dead and buried. This is especially true in light of the Fed’s statements that it would rather cut rates too late than too early, as it doesn’t want the smoldering embers of inflation to reignite into a fire.
The most important event on the economic calendar is March 20thth Fed rate decision along with quarterly summary of economic projections. No one on the planet expects a rate cut at this meeting. However, they will examine every word of the report… and Powell’s every statement and facial expression during the press conference for clues to what comes next.
No doubt someone at the press conference will ask Powell what he meant by his recent statement that rate cuts are “not far” off. Most likely, he responds to that comment with more “data dependent” and “better late than early” talk, which suggests to investors that even June may be too early for the rate cut parade.
If true, this could be the catalyst for the long-awaited pullback from current highs. Nothing scary. Just a nice 3-5% pullback after the 25% rally from the October 2023 low.
However, there is no law that says this must happen. Instead, investors may simply continue to sit idle at this red light waiting for the green that will eventually come when rates are cut. This would be what you would call a consolidation below 5,200, where the market average doesn’t move much… but results in a large sector rotation.
Some call it “rolling correction” where each sector takes turns in outs even if the overall market indices don’t move much. These sector-focused sell-offs cause appropriate declines in overripe positions. This is the best way to pave the way for the next healthy bull run .
Long story short, stay bullish. And stay focused on companies with healthy growth and attractive prices. POWR Ratings continue to be your best friend when searching for quality stocks.
More information about this in the next section…
What to do next?
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This is all based on my 43 years of investing experience watching bull markets… bear markets… and everything in between.
If you’re curious to learn more and want to see these 13 hand-picked lucky trades, click the link below to get started right away.
Steve Reitmeister’s Trading Plan and Top Picks >
Wishing you a world of successful investing!
Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
CEO of StockNews.com and editor of Reitmeister Total Return
SPY shares traded at $510.73 per share on Friday morning, down $2.63 (-0.51%). Year to date, SPY has gained 7.45%, compared to a % gain in the benchmark S&P 500 index over the same period.
About the author: Steve Reitmeister
Steve is better known to StockNews audiences as “Reity.” He is not only the CEO of the company, but also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Find out more about Reity’s background, along with links to her most recent articles and headline picks.
Moreover…
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