According to Chairman Powell, there is no “dovish tilt” by the Fed and they are open to raising rates again if needed. However, there are numerous facts that suggest inflation is coming down, rate hikes are over, and it’s time to plan for rate cuts in the year ahead. As a result, the S&P 500 (SPY) has sprinted to new highs above 4,700. What happens next? And how can stock investors outperform? Investment pro Steve Reitmeister covers this in his latest market commentary which includes a preview of his top 13 picks for today’s market. Read on below for more.
Investors enjoyed a clear dovish tilt in the Fed’s language from the 12/13 meeting. This pushed the S&P 500 (SPY) to new highs for the year.
Chairman Powell emphasized the flexibility the Fed needs and mentioned the possibility of raising rates again. However, the updated dot plot from Fed officials showed no more rate hikes and 3 rate cuts in the year ahead. This has led to stocks pressing on the gas pedal and further accentuating the bull run that started after the 11/1 Fed meeting.
Now, let’s review the key details from the Fed announcement and what that means for our investment plans in the weeks and months ahead.
Market Commentary
The PPI report from earlier that day pointed out the improvements in the fight against inflation. Core PPI is now down to the Fed target at 2% while the full PPI reading is even more tame at only +0.9%. This bodes well for lower readings in the future and the Fed feeling confident to follow through on their dovish language tilt with the actual lowering of rates.
While this was not factored into the Fed’s announcement that afternoon, it does provide evidence that the Fed sees many positive developments in place. Stocks responded by rallying, and bond yields moved even lower, as a result of the Fed’s announcement concerning 3 rate cuts in 2024 and another 4 in 2025.
The next Fed meeting is set for January 31, 2024. Only a month ago, the odds of a rate cut were nearly non-existent at 2% probability. This has since spiked to 21% with the recent information on hand. There are also 82% odds of a rate cut for the March 20, 2024 meeting.
It is clear that the Fed has managed a soft landing for the economy this cycle, as less talk of hikes and more talks of cuts has emerged, leading to the strong stock market rally based on this dovish tilt from the Fed.
However, expectations for the future need to be tempered as much of that positive chain reaction for stocks is already showing up in current share prices. This fits under the well-understood concept that investors make their selections today based on what they expect 4-6 months down the road.
This also matches with what was shared in the 2024 Stock Market Outlook presentation where it was discussed that the path to stock market gains will be very different than in 2023, and the likelihood of small caps finally taking the lead from large caps in the year ahead.
Thursday saw small caps in the Russell 2000 outperforming the large cap centric S&P 500, and this small stock advantage is expected to continue to play out in 2024. Our portfolio is gladly tilted in that small cap direction and is enjoying very strong recent performance.
What To Do Next?
Discover my current portfolio of 11 stocks packed with outperforming benefits found in our exclusive POWR Ratings model. This includes 4 small caps recently added with tremendous upside potential, along with 2 special ETFs that are all in sectors well positioned to outpace the market in the weeks and months ahead. If you are curious to learn more and want to see these 13 hand-selected trades, click the link below to get started now.
Wishing you a world of investment success! Steve Reitmeister
SPY shares were trading at $469.98 per share on Friday afternoon, down $2.03 (-0.43%). Year-to-date, SPY has gained 24.26%, versus a % rise in the benchmark S&P 500 index during the same period.
About the Author: Steve Reitmeister
Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.
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