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The Trend Is What Matters

The Trend Is What Matters

It’s been a rough month… in a rough quarter… in a rough year.

Last week’s CPI numbers, despite not being terribly off of analysts’ expectations and moving in the right direction, cratered the hard-won 4,100 level on the S&P 500 and dragged it beneath 3,800.

Since then, the market has been floundering, and the speculation that this week’s Fed’s meeting will deliver another a dramatic rate hike, is not helping.

As I’ve said before, it’s not that the Fed’s rate hikes are irrelevant; it’s that the market puts too much emphasis on particular one-off meetings or events. The trend is what matters, and there’s no question that the interest rate trend of the last few months has been up. And we’ll be seeing more of that trend tomorrow when the Fed hikes short-term rates once again.

But, we may be approaching the silver-lining stage – the moment when investors begin to believe that the Fed has accomplished its task of taming inflation. I think that moment is very close.

All trends point to subsiding inflation.

Energy is trending lower (that is, everything crude-oil related). The supply-chain issues are clearing up. And final demand from both consumers and businesses is moderating.

Because of these key disinflationary factors, I expect the market to begin “looking ahead” to when inflation concerns have diminished. I want to revisit some thoughts from July when, as they are wont to do, the Fed most recently terrorized investors.


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“Fed Schmed”

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.

I think we’re likely past the tough part of figuring out where inflation and the economy stand and what the Fed will do about it. The market has already priced those factors in, so unless there is a huge surprise of some sort, today’s and tomorrow’s meeting probably won’t have the same impact as those earlier in the year.

To be clear, I’m not dismissing in the importance of the Fed and monetary policy. Of course it’s critical.

But unless the inflation and/or interest-rate trend has changed and the Fed shocks the heck out of us, I believe 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.

True, 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.

And on Thursday, I’m going to dive into an emerging industry full of them.

Stay tuned.

Regards,

Eric

P.S. If you don’t want to wait until Thursday, click here to learn how to get access to my latest issue of Investment Report, wherein I examine this megatrend in full.

Eric Fry is an award-winning stock picker with numerous “10-bagger” calls — in good markets AND bad. How? By finding potent global megatrends… before they take off. In fact, Eric has recommended 41 different 1,000%+ stock market winners in his career. Plus, he beat 650 of the world’s most famous investors (including Bill Ackman and David Einhorn) in a contest. And today he’s revealing his next potential 1,000% winner for free, here.


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