The market is slow right now, but it’s a welcome respite from the volatility that plagued us earlier this year.
We are usually in a lull between earnings season and the holidays.
For this reason, 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 stay grey…
3 things to watch out for
Our outlook is equally positive and less positive.
On the one hand, we are convinced that the “support” of the main indices will hold.
If you don’t know what support means, think of the pilings that support beachfront homes. In literal terms, when there is enough demand in the overall market to keep prices from falling further, the market has reached support.
As prices fall, buyers become more inclined to buy and sellers are more inclined to hold their stocks, in the hope that they will increase in value. (We talked about it in more detail in Tuesday’s column.)
On the other hand, the upside is rather limited – and will remain so for some time.
But there are three ongoing variables that could increase our confidence in our forecast – or make us a little more cautious.
Here is a quick summary…
Jerome Powell and the Fed
First, Fed Chairman Jerome Powell spoke with the Brooking Institution on Wednesday morning about inflation and the Fed’s economic outlook.
Overall, the comments were mostly consistent with what we heard from Fed officials throughout the month.
However, Powell sent a more optimistic message about when rate hikes might slow. He said: “The time to moderate the pace of rate increases may come as early as the December meeting.”
Traders don’t like the Fed talking about inflation, but the comments on this month bode well.
Of course, investors don’t like the Fed continuing to hike rates, but higher rates have already been priced into the market, meaning prices could be artificially low if the hikes start to slow next month. .
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COVID situation in China
Second, the week started on a sour note as investors worried that rising COVID infection rates and protests in China could further aggravate supply chains. Apple Inc. (AAPL)in particular, fell more than 4% following the news.
However, the news that the Chinese government will start pushing vaccinations (stopping before a mandate) among vulnerable populations is an important change in tone.
How quickly they can roll out a campaign like this is uncertain, but what is more important is that it signals that the government is trying to avoid further economic turbulence and will take a softer approach to avoid lockdowns. excessive.
As a result, tech has likely been oversold on China fears, and we could see a rebound in this sector over the next couple of weeks.
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Work and consumption
Finally, our messaging over the past few months has been consistent.
Stocks should remain flat as growth is weak, but strong consumer spending and a booming labor market will keep prices bottoming.
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 increase by 6 to 8% compared to last year. Part of this increase is due to inflation, but the data shows that consumers are still spending.
Figures from the Job Openings and Labor Turnover Survey were released again this morning, showing over 10 million openings, which is well above what the line of trend would have predicted over the past decade.
What this tells us is that despite some layoffs at bloated tech companies at the top of the market cap spectrum (e.g., Meta Platforms Inc. (META), Alphabet Inc. (GOOGL)and Twitter) the job market is strong.
We will be back with you soon.
John and Wade