- Moving the markets
The release of the most recent Fed minutes was on traders’ minds, while they looked for clues as to what the next move by the Central Bank would be in terms of inflationary measures. An early bounce of hope reversed, despite a short squeeze, and the bears scored another win with the S&P 500 now having notched its 4th straight day of losses.
The Fed’s summary showed that inflation hovered well above the Fed’s 2% target, while the Labor market appears to be still very tight and thereby continues to keep upward pressure on wages and prices.
The only positive was the mention of a welcome reduction in the monthly pace of price increases, as MarketWatch reported. But, the disclaimer followed right away in that more progress would be required to confirm a sustainable downward path of inflationary trends.
In other words, no hope was given to those still thinking that the Fed might pause/pivot in the near future. As a result, the early bullish theme shifted into reverse, and two of the three major indexes closed the session with modest losses.
Bond yields rode the roller coaster with yields softening somewhat, as the 10-year pulled back a modest 3 bps to close at 3.925%. However, the Fed’s terminal rate moved higher from yesterday’s 5.33% indicating more hawkishness.
The US Dollar resumed its trajectory to higher prices and wiped out the majority of Friday’s losses. Gold slipped again and was not able to hang on to its $1,850 level.
The Cleveland Fed’s own inflation forecasting model shows that the disinflation of the past few months appears to have come to an end, as ZeroHedge commented. Does that mean inflation will now rear its ugly head again?
I believe those odds are far better than 50-50.
2. “Buy” Cycle Suggestions
For the current Buy cycle, which started on 12/1/2022, I suggested you reference my then current StatSheet for ETF selections. However, if you came on board later, you may want to look at the most recent version, which is published and posted every Thursday at 6:30 pm PST.
I also recommend for you to consider your risk tolerance when making your selections by dropping down more towards the middle of the M-Index rankings, should you tend to be more risk adverse. Likewise, a partial initial exposure to the markets, say 33% to start with, will reduce your risk in case of a sudden directional turnaround.
We are living in times of great uncertainty, with economic fundamentals steadily deteriorating, which will eventually affect earnings negatively and, by association, stock prices. I can see this current Buy signal to be short lived, say to the end of the year, and would not be surprised if it ends at some point in January.
In my advisor practice, we are therefore looking for limited exposure in value, some growth and dividend ETFs. Of course, gold has been a core holding for a long time.
With all investments, I recommend the use of a trailing sell stop in the range of 8-12% to limit your downside risk.
3. Trend Tracking Indexes (TTIs)
Our TTIs slipped a tad with the bears scoring another win, albeit a small one.
This is how we closed 02/22/2023:
Domestic TTI: +4.31% above its M/A (prior close +4.44%)—Buy signal effective 12/1/2022.
International TTI: +7.39% above its M/A (prior close +8.10%)—Buy signal effective 12/1/2022.
All linked charts above are courtesy of Bloomberg via ZeroHedge.
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