The market is slow right now, but that’s a welcome reprieve from the volatility that plagued us earlier this year.
We’re usually in a lull between earnings seasons and the holidays.
Because of this, we don’t expect anything to change our outlook for the rest of the year.
Here’s what that means for you – and a simple profit-generating strategy you can use while things remain gray…
3 Things to Watch For
Our outlook is equal parts positive and not as positive.
On the one hand, we’re confident that “support” for major indexes will hold.
If you’re unclear on what support means, think of the stilts that support beachfront homes. In literal terms, when the overall market experiences enough demand to keep prices from falling further, the market has reached support.
As prices drop, buyers become more inclined to buy, and sellers are more inclined to hang on to their shares, in the hopes that they will increase in value. (We went over this in more detail in Tuesday’s column.)
On the other hand, upside is rather limited – and will remain so for a while.
But there are three variables underway that could increase our confidence about our forecast – or make us a little more cautious.
Here’s a quick summary…
Jerome Powell and the Fed
First, Fed Chairman Jerome Powell spoke to the Brooking Institution on Wednesday morning about inflation and the Fed’s economic outlook.
Overall, the comments mostly aligned with what we have been hearing from Fed officials all month.
However, Powell conveyed a more optimistic message for when the rate hikes may slow. He said, “The time for moderating the pace of rate increases may come as soon as the December meeting.”
Traders don’t like it when the Fed talks about inflation, but the comments about this month bode well.
Sure, investors don’t like it that the Fed is still raising rates, but higher rates were already priced into the market, which means prices may be artificially low if the hikes start to slow next month.
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China’s COVID Situation
Second, the week started out on a sour note as investors worried that China’s rising COVID infection rates and protests would further snarl supply chains. Apple Inc. (AAPL), in particular, dropped more than 4% following the news.
However, the news that the Chinese government will begin pushing vaccinations (stopping short of a mandate) among vulnerable populations is an important shift in tone.
The speed at which they can roll out a campaign like that is uncertain, but what’s more important is that this signals that the government is trying to avoid further economic turmoil and will take a softer approach to avoid excessive lockdowns.
Consequently, tech has probably been oversold on China fears, and we could see a rebound in that sector over the next two or three weeks.
If we do see a rebound in that space, we may have a few new plays to recommend in our Strategic Trader elite research service – and we have good reason to look forward to them.
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Labor and Consumption
Lastly, our message over the past few months has been consistent.
Stocks are likely to remain flat because growth is low, but strong consumer spending and a booming labor market will keep a floor under prices.
The National Retail Federation (NRF) estimated that a record number of shoppers turned out for Black Friday (and a similar record was set for Cyber Monday) with sales expected to rise by 6-8% from last year. Some of that increase is due to inflation, but the data shows consumers are still spending.
The Job Openings and Labor Turnover Survey numbers were out again this morning, showing more than 10 million openings, which is much higher than the trendline would have predicted over the last decade.
What this tells us is that despite some layoffs in the bloated tech companies at the top of the market-cap spectrum (e.g., Meta Platforms Inc. (META), Alphabet Inc. (GOOGL), and Twitter) the jobs market is solid.
We’ll be back with you soon.
Sincerely,
John and Wade
