As I’ve explained in recent issues of The Free Market Speculator, I have my doubts about the longer-term upside potential for the broader stock market.
Specifically, the investor consensus is now behind a “soft landing” for the US economy coupled with a gradual decline in inflation towards the Fed’s target. The crowd sees little pain for the economy, or labor market, as a result of the central bank’s aggressive hiking campaign since early 2022.
I believe that Goldilocks dream scenario remains wildly optimistic.
Historically, it takes time for Fed rate hikes to actually work their way through the financial system and impact the economy. So, it’s quite likely we have yet to experience the full chilling effect of the tightening the Fed did in late 2022 and early this year.
Moreover, we’re already seeing some troubling signs in the economic data as I covered in the November 7th issue “Recession Risks Rising” and the November 14th post “Forget the Fed, It’s the Economy.” There are growing signs of strain evident in corporate earnings as I covered in the October 31st article “Earnings and the Deteriorating Market Outlook.”
However, in the model portfolio it’s crucial to balance that longer-term cautious outlook with the growing probability of a near-term tactical rally into year end.
The equity market’s bullish bias into year-end is undeniable, and better-than-expected reads on inflation over the past few days likely give bulls cover to push stocks higher into the end of this year or early in 2024.
I’m therefore recommending some tactical moves in the model portfolio this week including booking some significant profits on one of our recommendations that’s looking extended on the charts and is due to report earnings tomorrow evening.
I’m also recommending an exchange traded fund (ETF) I see benefiting from rotation into year-end.
Here’s a rundown:
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