- Moving the markets
Fed chair Powell testified before congress today, reiterating his stance that inflation is still high and that interest rates will likely rise by the end of the year. He also expressed confidence in the resilience of the U.S. banking system, despite the headwinds from the pandemic and supply chain disruptions.
However, his words did not seem to sway the market sentiment, as Wall Street traders and algos continued to bet on a dovish Fed that will support the ongoing rally. The S&P 500 closed slightly lower for the fourth consecutive session, after an early sell-off and a midday rebound.
Inflation remains the top concern for many consumers and businesses, as real wages have been negative for 26 months in a row. The latest data shows that inflation is outpacing any wage gains, eroding the purchasing power of Americans.
Moreover, the market rally has been driven by a narrow group of tech giants, known as the Big A.I. (AAPL, MSFT, GOOG, AMZN, TSLA, META, NVDA). Without them, the S&P 500 would have been almost flat year-to-date. This shows how uneven and fragile the market recovery has been.
The US Dollar weakened, despite Powell’s hawkish tone, while bond yields fluctuated and ended up unchanged. Gold also recovered from a dip and closed flat. AI stocks fell again and gave up their recent gains.
Looking at the global picture, the U.S. economy seems to be holding up better than the Eurozone and China, which are facing more challenges from Covid-19 variants and slowing growth.
In summary, Powell’s testimony did not change much for the market outlook, as investors remain skeptical about the Fed’s ability and willingness to rein in inflation and normalize monetary policy.
The market rally is losing steam and becoming more concentrated on a few tech stocks, while inflation is hurting consumers and businesses alike.
- “Buy” Cycle Suggestions
The current Buy cycle began on 12/1/2022, and I gave you some ETF tips based on my StatSheet back then. But if you joined me later, you might want to check out the latest StatSheet, which I update and post every Thursday at 6:30 pm PST.
You should also think about how much risk you can handle when picking your ETFs. If you are more cautious, you might want to go for the ones in the middle of the M-Index rankings. And if you don’t want to go all in, you can start with a 33% exposure and see how it goes.
We are in a crazy time, with the economy going downhill and some earnings taking a hit. That will eventually drag down stock prices too. So, in my advisor’s practice, we are looking for some value, growth and dividend ETFs that can weather the storm. And of course, gold is always a good friend.
Whatever you invest in, don’t forget to use a trailing sell stop of 8-12% to protect yourself from big losses.
- Trend Tracking Indexes (TTIs)
The markets recovered some of their early losses, but still ended in the red. This marked the fourth consecutive day of declines for both of our Trend Tracking Indexes (TTIs), which remain above their respective trend lines.
This is how we closed 06/21/2023:
Domestic TTI: +3.12% above its M/A (prior close +3.26%)—Buy signal effective 12/1/2022.
International TTI: +8.10% above its M/A (prior close +8.16%)—Buy signal effective 12/1/2022.
All linked charts above are courtesy of Bloomberg via ZeroHedge.
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