[Power Trends] 4 Catalysts Set to Launch the Next Big Lift In Stocks
One thing about using data to form your outlook... youâre not always going to be part of the âinâ crowd. If I wanted to be popular, I would join with investors who are at best sitting and waiting and at worst fleeing stocks. The latest AAII Sentiment Survey showed individual investors were more pessimistic than usual for 10 weeks in a row. Optimism was unusually low for the 49th time in the past 69 weeks. But go back six months to the lows of last October, and what do you see?
Some volatility, yes. But also a clear uptrend. Good money was made in the last six months, but I fear even more was not made because investors only paid attention to the headlines and not what was really going on in the market. Stocks were falling and investors were in a foul mood last October. Everyone was talking about inflation, the hawkish Fed, the potential for recession, and the crypto winter. Nobody was talking about a bull market in stocks. But we were in my Quantum Edge Pro service. We predicted a âBig Liftâ in stocks, and thatâs what we got. And the sectors we pinpointed â Technology and Discretionary â led the way. Now, exactly six months later, the financial landscape is once again lousy. We still have inflation. Interest rates are at their highest level in nearly 15 years â with a risk that theyâre going too high. The economy is slowing. Talk of recession has picked up (again). And Washington is driving America into yet another debt crisis. All real. All important. But not whatâs most important. The triggers are there to ignite a powerful new rally in stocks... call it the âBig Lift 2.0.â Catalyst #1: The End of Rate Hikes Is Near
A little over a year ago (March 16, 2022), the Federal Reserve began raising interest rates to try to fight persistent and concerning inflation. Eight increases later, rates are as high as theyâve been in nearly 15 years, and the pressure is on the Fed to pause before overdoing it and damaging the economy. CME Groupâs FedWatch Tool shows investors assign a greater than 90% probability of a quarter-point increase on Wednesday... and a more than 60% likelihood that will be the last of the rate hikes. At least for now. This is the biggest and darkest cloud hanging over stocks right now, and it looks as if skies are finally about to brighten. Thatâs in part because... Catalyst #2: Inflation Is Cooling
The Fedâs war on inflation is working. The only question has been whether the central bank would overshoot and end up doing more harm than good. I donât see that being the case, if Fed Chair Jerome Powell and company are smart and hit the pause button now while they can. Inflation is still higher than anyone would like. You and I donât like paying the prices weâre seeing for groceries, gasoline, eating out, vacations, or anything else. And the Fed targets a 2% rate. But no one can deny that prices are increasing at a much slower pace than they were last summer.
Higher interest rates have cooled inflation, and they continue to cool inflation. Of course, theyâve also cooled the economy, too. But thankfully, not enough to create massive problems. We know that because... RECOMMENDED LINK [What price will TSLA, NVDA, and APPL be in a month?](
During a recent special event, we launched our breakthrough, new A.I. algorithm called An-E... and showed many of its past predictions and just how accurate they were (often precise to within a tenth of a percent). Well, during the event we also showed what An-E's predictions were for three of the most widely held stocks on the market one-month into the future.
[You can see what those predictions are by going here]( Catalyst #3: Earnings Are Working
We are in the throes of quarterly earnings reports, and this has been one of the stranger seasons in a while. But so far it is playing out as I expected, which means earnings are âworking.â According to FactSet, 79% of S&P 500 companies reporting so far have beaten earnings expectations. Thatâs with 53% of S&P 500 companies reporting, so we have a large enough sample size to spot a trend. The trend is true of revenue as well, with 74% of companies beating sales estimates. Outstanding reports from major bellwethers like Microsoft (MSFT), Amazon (AMZN), and Meta Platforms (META) helped the tech sector. And Chipotle Mexican Grill (CMG), shares of which I own, blew away earnings estimates in the discretionary sector. I expect earnings to continue working. And this ongoing realization that things arenât as bad as feared provides another catalyst for the next Big Lift. Catalyst #4: Cash on the Sidelines
You need fuel to launch, and right now there is more fuel for stocks than ever. Record amounts of cash are just sitting there as investors have that deer-in-the-headlights look, not knowing what to do. I know itâs a little hard to see the numbers, but this chart shows the total assets in money market funds going back to 1945.
Thatâs $5 trillion in those cash accounts â and itâs far and away the most in history. It wonât stay there. It canât. Money managers arenât paid to park funds in cash accounts. Thereâs an inherent pressure to have that money working. And once these catalysts kick in, FOMO (âfear of missing outâ) will also kick in, and we could see a tidal wave of cash coming back into stocks. Quite simply, there are no better alternatives. One of the distinguishing features of my [Quantum Edge system]( is its ability to track what Big Money is buying and selling. It does so by showing green bars, and I expect to see a lot more of those in coming months. The only way to make sure you donât lose money is to keep it in cash. And with inflation, that isnât even true as cash loses value. And... the only way to make sure you donât make money is also to keep it cash. You may squeeze out a few percentage points, but not the kind of money you need to achieve your goals. If I could say one thing to every investor right now, it would be to get that cash off the sidelines and into the best stocks in the market â [the stocks with the highest probability of making you good money](. And as is always the case, these are the rare stocks with superior fundamentals, the strongest technicals, and Big Money pouring in. The stocks with the highest [Quantum Scores](. Talk soon, [Jason Bodner]Jason Bodner
Editor, Jason Bodnerâs Power Trends [866.385.2076](tel:+866-385-2076) | support@tradesmith.com
©2023 TradeSmith, LLC. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of TradeSmith, LLC. This work is based on SEC filings, current events, interviews, corporate press releases and what we’ve learned as researchers and writers. Our work may contain errors and should not be considered personalized investment advice. TradeSmith, LLC does not issue securities recommendations, and no discussion of a particular stock(s) should be interpreted as such. Past, simulated, and/or hypothetical performance of any strategy published by TradeSmith, LLC should not be interpreted as representational of future returns. You shouldn’t make any investment decision based solely on what you read here. It’s your money and your responsibility. TradeSmith P.O. Box 340087 Tampa, FL 33694 [Terms of Use]( [Privacy Policy]( To unsubscribe or change your email preferences, please [click here](. [tradesmith logo]