How to Make Sense of Today’s Confusing Stock Markets

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(Please enjoy this updated version of my weekly commentary posted September 8e2022 of the POWR Stocks Under $10 newsletter).

Over the past week, the S&P 500 (SPY) has risen just under 1%. This type of selling underestimates recent volatility (or instability) in the market. In fact, we briefly crossed the 3,900 mark at the start of the week, before climbing back up to 4,000 at the end of the week.

Today’s session summed up this choppy environment. After a strong session yesterday, the market pulled back. Then it recouped those losses before falling due to a hawkish ECB meeting.

However, these losses were recouped at the close as the market anticipates the CPI report and the upcoming FOMC meeting.

It should be noted that the market did an admirable job of absorbing bad news without crashing.

This includes a steady stream of hawkish FOMC speakers, a hawkish ECB meeting, a strong US dollar and more signs of weakness in the housing market. Still, the S&P 500 (SPY) remained above June lows.

Another interesting thing is to compare the current moment to June lows of around 3,600. Sentiment is back to June levels, but stocks are up 10%.

More importantly, the fundamentals are much better with much better inflation. And, the market and economy have absorbed another 3 months of tighter monetary policy, but continue to show minimal damage in terms of consumer spending and employment.

As I said in today’s trade alert, the much-vaunted soft landing scenario that seemed implausible when the Fed began its rate hikes is now entirely plausible.

Fed vs Fundamentals

The main sticking point in the bullish case is not the economy, inflation or earnings. It’s the Fed.

They seem oblivious to the evidence that inflation has peaked or the damage a strong dollar is doing to the rest of the world (ROW) or the possibility that an overly tight monetary policy could create a bigger problem in the future. .

In fact, they continue to focus on the need to reduce inflation as a primary objective. It’s fair to say that this market rally ended during FOMC Chairman Powell’s Jackson Hole speech where he continued to pound the table on the importance of fighting inflation.

And, the selling accelerated as more and more FOMC members continued to send the same message.

That’s why I chose the title above. Fundamentals are moving in the right direction, but that doesn’t mean much if the Fed continues to aggressively hike rates.

According to a recent WSJ report, he plans to do just that with another 75 basis point hike at the next meeting.

before inflation

I continue to see inflation as the biggest issue in the market right now.

Rising inflation is crushing consumer confidence and will eventually erode profit margins (not to mention an even more hawkish Fed). On the other hand, lower inflation will (at some point) lead to relief on the rate front and support profit margins and earnings.

Everything I see is consistent with inflation collapsing at a pace that reflects its rocket trajectory. Data today showed used car prices fell 4% from a month ago. Gasoline prices are down 12% over the past month.

The housing market has cooled, with some markets now seeing price declines. This portends relief in terms of rents which is another contributor to inflation.

Another area that is seeing a turnaround is freight prices which have now returned to pre-pandemic levels, another positive and disinflationary force that is expected to affect all manner of prices.

Overall, I’m comfortable saying that inflation has peaked and the worst is behind us.

What I am less sure of is when the Fed will recognize this improving momentum. And, when all they have to do is back off the accelerator.

Another uncertainty is whether the market will focus on the Fed or improving fundamentals.

Today’s jobs

This logic informs the trades of today. The most likely way to resolve these dueling bullish and bearish impulses is to use some sort of range-bound price action.

Positive news on the inflation front would take us to the top of the range around 4,300.

But, the Fed’s hawkish chatter would take us back to 3,900. To get back to 3,600 (or lower), I think inflationary pressures would have to reignite or there would be evidence of more damage to the economy. economy and profits.

What to do next?

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All my wishes!

Jaimini Desai
Chief Growth Strategist, StockNews
Editor, POWR Stocks Under $10 Newsletter


SPY shares were trading at $405.46 per share Friday morning, up $5.08 (+1.27%). Year-to-date, SPY is down -14.00%, versus a % rise in the benchmark S&P 500 over the same period.

About the Author: Jaimini Desai

Jaimini Desai has been a financial writer and journalist for nearly a decade. Its aim is to help readers identify risks and opportunities in the markets. He is chief growth strategist for StockNews.com and editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s journey, as well as links to his most recent articles. After…

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