The S&P 500 (SPY) is up nearly 50% from bear market lows. This is a sign that easy money has been made. The next likely catalyst for stocks will likely be the Fed’s first rate cut… but perhaps this is truly the final push before a long-overdue sell-off? Tune in to find out 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 pack. Continue reading below for more information.
It is clear that the Fed’s decision to lower rates is the main catalyst that everyone is waiting for. The next opportunity that could occur is Wednesday 1 Mayst.
Since the Fed is “data dependent” (as they repeat like a blown record) then it’s best to focus on the timing of the next data… and what it tells us about the rate cut decision and the market outlook. Continue reading below for the full story.. .
Comment on the market
The background is simple. The Fed appears to have succeeded in guiding the economy to a soft landing, while at the same time bringing inflation back towards its 2% target.
As Powell explained at the last meeting, the Fed can actually start lowering rates before they reach the 2% target because rates would still be restrictive after the first cut. Second, there are lagged effects of rising rates, and if you waited until you get to exactly 2% you might actually risk causing unnecessary damage to the labor market (which is the other half of their dual mandate of maintaining stable prices and maximum occupation).
Right now, virtually no one expects the rate cut to happen on May 1stst the meeting on the occasion of the latest round of inflation data was a little too hot. Therefore, even just one more batch of monthly inflation data in April would not be enough to convince these academics to vote with confidence for a rate cut.
The focus is instead on June 12thth it will be the starting line for rate cuts. The CME currently calculates this as a 65% chance. But again, this data depends on the roll call of reports that take place in the coming weeks… and what Powell shares with the market in his May 1 report.st Press conference.
Here are the major economic reports along with some notes to put them in perspective:
3/28 core PCE- This is the Fed’s preferred measure of inflation, which has been at 2.0% for the past two quarters. Even better is the non-core figure for the fourth quarter, equal to 1.8%, a notable decline compared to the 2.6% of the third quarter. This data should contribute significantly to the June rate cut.
4/5 Employment situation in government: What will be even more important than the number of jobs added will be the wage inflation data. Last month was too hot at +4.3% year over year. We need to continue to see this sticky form of inflation unblock at this high level. Month-by-month reading will be helpful in appreciating the pace of decline. Any monthly increase above 0.2% would indicate unwanted inflationary pressures from wages.
4/10 Consumer Price Index (CPI): The latter has been in sharp decline over the past year, but last month was a little higher than expected with core inflation of 3.8% with a monthly increase of 0.4%. This percentage needs to start falling below 3% in the coming months to increase the chances of a cut coming.
FOMC Minutes 4/10: It’s hard to imagine more details emerging than the voluminous comments Powell made on March 20th Press conference. Yet one can imagine that investors will scrutinize every word for some clue that points to a likely starting line for rate cuts.
4/11 Producer Price Index (PPI): The least followed of the 3 main inflation reports, but the one that many economists appreciate as a leading indicator of the performance of the other reports over time. Note that this is already in line with the 2% target and bodes well for the continued reduction of PCE and CPI towards that desired level.
Fed Meeting 5/1: The press release goes out at 2pm ET. And at 2.30pm there’s the even bigger press conference with Powell, where we get a lot more color commentary. Given the facts at hand, investors are right to highly doubt that the rate cut will happen at this time. The real key is that if they showed better language, June would be in play.
Exchange plan
We are in a bull market. This isn’t a shock to anyone.
What is unclear is the pace of future gains, as we will already be up 50% in just a year and a half. Remember that the normal expected return is closer to 8% annual earnings.
I suspect 5,500 is the high of the S&P 500 (SPY) this year. This means that the catalyst for stocks from a rate hike is pretty much already baked into the pie.
This led me to write my previous article, Investor Alert: “Buy the Rumors, Sell the News!”
The short version is that I wouldn’t be surprised if stocks rallied after the rate cut announcement followed by a well-deserved round of profit taking. Unfortunately, just around the corner is this sell-off… another sell-off that matches the presidential election pattern is likely.
As stated earlier, this is not a reason to become bearish or conservative. It is best to assume a bull market and an overall rally until proven otherwise. The key is which stocks will see the biggest gains.
We know that growth stocks generally lead the parade in the early stages of a new bull market. This is especially clear when considering the earnings recorded in 2023.
What happens after a growth-oriented phase is a return to value. This makes investors work a little harder to find interesting opportunities. This is where the in-depth review of 118 factors from our POWR ranking model comes in very handy.
The model does the heavy lifting by delving into the fundamental attractiveness of companies. The top 5% are rated A, which explains why it has produced an average annual return of +28.56% since 1999 (nearly 4x better than the S&P 500).
That first 5% is the starting point for our stock selection… then we continue to drill down from there to find the stocks with the most attractive upside potential.
Which top stocks do we recommend now?
Continue reading below for the answers…
What to do next?
Check out my current 12-stock portfolio filled to the brim with the outperforming advantages found in our unique POWR Ratings model. (Nearly 4 times better than the S&P 500 Index dating back to 1999)
This includes 5 recently added hidden small caps with huge upside potential.
I also have 1 specialty ETF that is incredibly well positioned to outperform the market in the weeks and months ahead.
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 $523.36 per share on Thursday afternoon, up $0.19 (+0.04%). Year to date, SPY has gained 10.45%, 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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