Dave Gilbert here, Editor of Smart Money.
There’s a ton of chatter right now about how this week, namely the Fed announcement, is our crystal ball, tarot cards, or good old Magic 8 Ball to tell us what the market will be like the rest of the year.
I found an online Magic 8 Ball and asked if that was the case, and the answer was Outlook good.
So it’s settled then, right?
We all know the answer to that question can only be definitive in hindsight, but the idea that this week will set the tone for the next five months makes sense…
- It’s the busiest earnings reporting week of the quarter, including some of the biggest and most influential companies on the planet like Microsoft Corp. (MSFT), Alphabet Inc. (GOOGL), Meta Platforms Inc. (META), Apple Inc. (AAPL), Amazon.com Inc. (AMZN), and Intel Corp. (INTC)…
- We get the first reading on whether the economy shrank in the second quarter. If so, that would be two consecutive quarters, technically qualifying as a recession…
- We’ll also get the latest inflation numbers on Friday, so we’ll see if inflation is starting to cool or remains too hot…
- And the Federal Reserve will increase interest rates again tomorrow, release its latest policy statement, and Chairman Jerome Powell will hold a press conference.
Fed watching ebbs and flows as perhaps the greatest pastime for investors. Right now, it is flowing, as every investor in America seems to be waiting for the latest proclamation from the Fed.
Is the Fed really that important, or in the words of Eric Fry, is it “Fed Schmed”?
25 Stocks That Could Kill Your Retirement
It doesn’t matter if you like them…
Every single one of these 25 stocks could destroy your retirement.
Which is why you need to get them out of your portfolio – as soon as possible.
What makes these stocks so toxic?
To be truthful, it’s their popularity.
The stocks I’m warning people to sell today are Wall Street darlings…
Companies that have been praised by analysts and investors alike.
Yet every single one of these companies could drop 50% in value. Blindsiding millions of investors…
Can you afford to be holding a stock like that?
The Bigger Fed Announcement Takeaway for Investors
Trying to predict the market’s reaction to a Fed announcement is risky, especially when we’re down in the market rabbit hole when good news is bad news, and vice versa.
For example, if the Fed raises rates less than expected, you would think that would be good news. And it could be… But it could also be viewed that the economy is slowing faster than expected and maybe heading for a deeper recession, which would be bad news.
Or if the Fed raises rates more than expected, it could be good news that the central banks is going after inflation aggressively. On the other hand, it could mean that nothing is working so far and inflation is on the verge of being out of control.
It’s just like jobs reports. A stronger-than-expected jobs report seems like it would be nothing but good news, but if it means the economy is continuing to heat up and the Fed will need to raise rates more aggressively, it could be bad news.
Eric Fry thinks we’re likely past the tough part of figuring out where inflation and the economy stand and what the Fed will do about it. He thinks the market has already priced those factors in, so unless there is a huge surprise of some sort, tomorrow’s announcement probably won’t have the same impact as those earlier in the year.
Hence “Fed Schmed.”
To be clear, Eric is not dismissing in the importance of the Fed and monetary policy. Of course it’s critical, and he knows that.
But in our team meeting yesterday, he shared his thoughts about the market and the second half of the year…
I think the market puts too much emphasis on particular one-off meetings or events. The trend is what matters, and I think that is already priced in to a large extent. I also think the market is now starting to look ahead to when inflation concerns have diminished.
The worst of the selling is probably over. That’s not to say there won’t be more downside, but I highly doubt it would be anywhere near what we’ve seen so far.
It’s also not to say that market is set to move higher. It could well stagnate or trade in a range for a time.
Investors can make money in that kind of market. Certain stocks and sectors are deeply discounted now, and we have seen buyers step in recently. As they should. Some quality companies are trading at bargain prices.
In addition, corporations and hedge funds are sitting on record levels of cash, so there is quite a bit of firepower out there.
Unless the inflation and/or interest-rate trend has changed and the Fed shocks the heck out of us, Eric believes we are now in an environment where investors can put their cash to work in expectation of solid and even large profits down the road.
As Eric also said yesterday, you may invest in a stock that drops another 10%-20% in the current volatility, but it is unlikely you would be looking at the 50% or more shellacking that many stocks have gotten so far in 2022.
Most important of all, there is now a greater chance that short-term losses will reverse and become 10%, 20%, 50%, or even bigger gains in the coming months and years – provided you’re investing in quality stocks, of course.
So by all means, grab your popcorn and watch the latest Fed drama tomorrow afternoon, but we may finally be at the point where it is not the biggest influence on the market or your investment decisions.
On the date of publication, Eric Fry did not have (either directly or indirectly) any positions in the securities mentioned in this article.