The Fed has begun its advance against the enemy of inflation with a 1/4% hike today. While it could be viewed as a gentle first move, we are reminded that a journey of a 1000 miles starts with a single step. Even if a cautious one at that.
In our opinion, the Fed has given inflation a “head-start” in this battle. Anyone who has ever procrastinated with homework knows that when you start out slowly, you’ll have to really hustle later and bear down to get it done on time (pull an all-nighter).
The Fed is banking on the economy slowing down on its own over the next year at the same time it will be raising rates another 1.50% or so. They hope to engineer a “soft landing.”
Today’s Fed action was the opposite of the “slamming on the brakes” rate hike style occasionally seen by Fed Chairs in decades past. And this rate hike campaign was telegraphed so well in advance that it caught absolutely no one by surprise.
But what if inflation proves to be a stronger foe than being given credit for by our current Fed? That’s when the Fed would have to pullout the heavy artillery (1/2% point hikes and use of in-between meeting hikes) to defeat its surge and take back (aggressively) the head start the Fed spotted it in the first place. Read- not a soft landing. For now, at least for a day, the stock market liked the soothing speech and demeanor of Chairman Powell.
As a result of today’s high volume, large price advance on the S&P500 and Nasdaq indexes as of 3:30pm EDT, the internal health of the stock market is notching a level of improvement. According to the excellent work done by the talented team at Investor’s Business Daily (I.B.D.), today’s sort of action is called a “Follow-through Day” and signals the start of a possible new advance.
Our Current Market Outlook is being upgraded to “Uptrend Under Pressure” with a yellow light. The “Core Four” shows 1 green, 1 yellow and 2 red lights with today’s action (see top of page).
Just a few days ago we wrote, “Keep an open mind to the likelihood of a fast and violent “reversion to the mean” up-move in the weeks ahead.” It appears that that move has begun.
We also shared in the same post, “While the internals, “the math of the market,” have been awful for many weeks (as our “Core Four” caught very early in the down move), a couple of small technical “green shoots” have appeared.” Those green shoots along with a “risk on” announcement from China and the calming words of Chair Powell put a fundamental spark to the technical green shoots kindling- and up she went!
Bear in mind, that just because the stock market is staging a follow-through day (F.T.D.) today, that does not guarantee a strong uptrend will emerge. According to I.B.D., every bull market in history has begun with a F.T.D., but not all F.T.D.’s have led to a bull market. Many rally attempts through history have failed, especially when other general conditions existed that were weak or against the economy (ie: rate hikes, war, etc.).
The next 3 days will be extremely critical for the stock market. This new rally attempt has its work cut out for it. The bulls must prove their case and quickly. Be on guard against professional selling (aka. Distribution Days) over the next 3 trading days which could torpedo the rally. Also, keep in mind that today’s rally confirmation is happening later in the rally attempt sequence than normally desired.
Our strategies have held up well this year. Thank God! We are slowly allocating capital back to work selectively with roughly a 50% allocation in equities currently.
This point from our last post also bears repeating, “Inverted yield curves often precede a recession. But, if the bank stocks hold up and even eventually start to lead, that can be seen as a good sign for the economy. Keep it on your radar.”
Please note we have recently discovered that we are having technical issues with our “Outlook Updates” archive dropdown feature to the right of our posts. Until further notice, please use the links at the bottom left of each post to access prior posts.
Game plan: Make the market prove itself before racing back in with large amounts of capital. Begin “picking your spots” with resilient leaders from your watchlist. Expect volatility and be ready to act boldly as opportunities arise. Keeping asking God for wisdom.
Have a Triumphant day! ®
The information in this article is based on data obtained from recognized services and sources and is believed to be reliable. Any opinions, projections or recommendations in this report are subject to change without notice and are not intended as individual investment advice. Not to be used as legal or tax advice.
©2022 Triumphant Portfolio Management, LLC.