The S&P 500 (SPY) has been in crisis since November 1, when the Fed began changing its dovish tilt, opening the door to future rate cuts. Unfortunately, such cases do not happen and the start date is being postponed more and more. Many people wonder whether stocks are getting ahead of themselves, setting things up for a decline. So now is a good time to check out what veteran investor Steve Reitmeister has to say about the market outlook, along with his trading plan and top picks that will put him ahead of the competition. More information can be found below.
As you probably remember from your English Literature classes, sometimes you have to…”Beware of the Ides of March“.
It was March 15, the day Julius Cesar was assassinated and often seen as an important checkpoint for investors so early in the new year.
Overall, there is nothing to fear as most signals still point to bulls. On the other hand, the S&P 500 (SPY) has risen significantly over the past few months, and the overall market seems poised for at least a minor pullback, if not a correction.
This concept and more will be the focus of today's market commentary.
Market commentary
Last week we wondered; What would cause a bear market now?
In short, there are two likely causes of a bear market. First, there is the looming recession, which reduces profits and risk-taking, leading to a deep decline in stock prices.
The second harbinger of a bear market is the formation of a stock price bubble that cannot be sustained. The last time something like this happened was in 2000, when the tech bubble burst. However, even the most ardent value investor would be hard-pressed to make a similar comparison to current conditions (perhaps a few overpriced AI stocks that deserve a discount).
Putting these ideas together, there isn't much reason to fear an upcoming bear market. On the other hand, there is no great reason for stocks to rise significantly, as I mentioned in my last comment: Is the bull market getting tired?
The main story is how the Fed's start date for interest rate cuts is being pushed further and further. Please remember that there was a time when people expected this to happen in December 2023. Now we respond on May 1street and HOPE on June 12vol is the starting line.
The cause was not helped by the warmer-than-expected PPI report on Thursday morning, with the monthly reading of +0.6% being twice as high as expected.
With this news, bond prices rose and stocks fell during the session. Moreover, the probability of a rate cut in June has dropped to 60%, while a few weeks ago it was probably over 80%.
Hate to say it, friends, but I'd say the odds of a cut in June are 50% at best…probably lower.
This is because if the Fed “data dependent“as they love to tell us, the latest data says inflation is still too high. This includes the sticky inflation reading from earlier in the week, which remains above 4% and is not moving fast enough towards the desired 2% target.
This calls into question whether June is a real possibility since there are not enough inflation readings in this short period to clearly conclude that high inflation is dead and buried. This is especially true given the Fed's statements that it would rather cut rates too late than too soon because it doesn't want the embers of inflation to reignite.
The most important event in the economic calendar is March 20vol Fed's interest rate decision along with a quarterly summary of economic forecasts. No one in the world expects an interest rate cut at this meeting. However, they will search every word in the report… and every statement and expression on Powell's face at the press conference, looking for clues about what will happen next.
No doubt someone at the press conference will ask Powell what he meant by his recent statement that interest rate cuts are “near” off. He's likely pushing back on that comment by saying it's more “data dependent” and saying “better late than early,” giving investors a hint that even June may be too early for a parade of rate cuts.
If true, this could be the catalyst for a long-awaited pullback from current highs. Nothing scary. Just a strong pullback of 3-5% after a 25% gain from the October 2023 low.
However, there is no regulation that says this has to happen. Instead, investors could simply continue to sit idly by at the red light, waiting for the green light that will eventually come when interest rates actually get lower. This would be what you call consolidation below 5200, where the market average doesn't move much… but results in a lot of sector rotation.
Some call it “rolling correction“, where each sector takes turns falling into the red, even if the overall market indexes do not move much. Sector-focused sell-offs trigger corresponding declines in overripe positions. This is the best way to clear the path for another healthy bull market.
In short, stay stubborn. And focus on healthy growing companies that are attractively priced. POWR Ratings continue to be your best friend when finding quality stocks.
More on this in the next chapter…
What to do next?
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This is all 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 world of investment success!
Steve Reitmeister…but everyone calls me Reity (pronounced “Righteous”)
CEO of StockNews.com and editor of Reitmeister Total Return
On Friday morning, SPY stock was trading at $510.73 per share, down $2.63 (-0.51%). Year-to-date, SPY has gained 7.45% compared to the percentage gain of the benchmark S&P 500 index over the same period.
About the author: Steve Reitmeister
Steve is better known to StockNews audiences as “Reity.” Not only is he the CEO of the company, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Find out more about Reity's history, as well as links to his latest articles and stock picks.
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