[Wednesday’s commentary from Fed Chairman Jerome Powell] was very bullish, and we believe it sets the stage for the beginning of a new bull market in 2023.
So says our hypergrowth expert Luke Lango.
Speaking on Wednesday, Powell confirmed that the Fed will be reducing the size of its rate hikes soon, likely meaning we’ll see only a 50-basis-point increase in December.
The speech sparked a massive stock market rally on Wednesday, with the Nasdaq leading the surge, up 4.4%.
Now, regular Digest readers know that we have our concerns about the market getting too excited. That’s because we’re likely headed into a challenging earnings environment. Lower earnings aren’t a stable foundation for higher stock prices.
But it’s critical that investors challenge their own market beliefs. So, why is Luke confident that this bear market is on its way out, and now is the time to buy great stocks?
For newer Digest readers, Luke specializes in finding cutting-edge technology innovators that are changing our world – and transforming portfolio returns in the process.
Because this type of growth stock can be especially sensitive to the Fed’s interest rate policy, Luke has been dissecting and analyzing everything from the Fed for months. And Wednesday’s commentary from Powell is the catalyst Luke has been waiting for.
Here’s the top-line from his Innovation Investor Daily Notes on Wednesday:
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[On Wednesday], we got confirmation that a pivot is already underway. Therefore, the odds of a stock market boom next year were significantly enhanced.
We think the party is just getting started. While stocks will likely remain highly volatile until the Fed actually stops hiking rates (probably in the second quarter of 2023), we do believe they will rally into that pause and soar after it.
Now is the time to buy, as this new bull market gets underway.
To unpack all this, let’s back up.
How can Luke claim that a Fed pivot began Wednesday? There was no change to interest rates – and no suggestion of a rate-cut anytime soon. In fact, Powell specifically said the opposite:
My colleagues and I do not want to overtighten because… cutting rates is not something we want to do soon.
In light of this, what is the basis for Luke’s belief that Wednesday marked the start of the Fed pivot?
Back to his Daily Notes:
The “pivot” isn’t a moment but, rather, a series of four pivots.
First, the Fed shifts its language/rhetoric. Second, it pivots on its pace of rate hikes. Third, the Fed pauses on rate hikes. Fourth, it moves to rate cuts.
[Wednesday], we got confirmation that we’re in the first pivot right now and that we will enter the second in two weeks.
Luke points out that in recent weeks, multiple Fed presidents have sounded more dovish, pointing toward the need to slow down rate hikes. Luke calls Powell’s comments the “final bang.”
So, we have new dovish language from the Fed, and it’s highly likely we’ll get dovish follow-through in the form of a reduced 50-basis-point hike on the 14th when the Fed concludes its December meeting.
What about the third and fourth pivots, when the Fed stops all rate hikes, and begins cutting?
Back to Luke:
Our expectation is that we will enter the third pivot – toward a pause – sometime in the second quarter of 2023.
Then, we will enter the fourth – toward cuts – sometime in the second half of 2023.
For that answer, let’s turn to our technical experts, John Jagerson and Wade Hansen of Strategic Trader.
From their Wednesday update:
The risk of recession hasn’t gone away, but the data just doesn’t justify a bearish outlook yet.
To support this position, John and Wade point toward “strong consumer spending” and a “booming labor market.”
Here they are with the details:
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 rise by 6-8% from last year.
Some of that increase is due to inflation, but the data shows consumers are still spending.
The Job Openings and Labor Turnover Survey numbers were out again [Wednesday] morning showing more than 10 million openings, which is much higher than the trendline would have predicted over the last decade.
What this tells us is that despite some layoffs in the bloated tech companies at the top of the market-cap spectrum (e.g., Facebook, Google, and Twitter) the jobs market is solid.
The Bureau of Labor Statistics will release the new jobs and unemployment report for the month of November on Friday, and we will be surprised to see anything less than 200K new jobs added again.
As predicted, this morning, we learned that the economy added 263,000 new jobs – crushing the forecast of 200,000 jobs.
In fact, the market is down as I write due to the unexpectedly strong report. It reveals a labor market that’s defying the Fed’s efforts to slow things down.
This morning’s report also included news that average hourly earnings jumped 0.6% for the month – that’s double the estimate. If we look at it on a yearly basis, the number came in at 5.1%, easily beating the 4.6% expectation.
To be clear, John and Wade aren’t calling for immediate bullishness from stocks, but they believe that Powell’s comments on Wednesday, combined with encouraging data in recent weeks, provide a firm support level for the S&P.
Here are those specifics:
Right now, we are confident that support on the major indexes will hold, but any potential upside is limited.
The market is slow right now. We’re in between earnings seasons, and the holiday weeks usually slow things down anyway.
So, we don’t expect anything to change our outlook for the rest of the year…
We anticipate support on the S&P 500 to remain intact at 3,900.
As I write Friday morning, the S&P trades at 4,040, giving us a cushion of roughly 3.5%.
In an email to our editors following Powell’s speech, Louis wrote:
Fed Chairman Jerome Powell’s speech at the Brookings Institution on Wednesday started off hawkish when he said “I will simply say that we have more ground to cover.”
However, Powell also said that inflation forecasts from the Fed pointed to a “significant decline over the next year.”
Despite his best Fed double speak, Wall Street got excited when Chairman Powell talked about inflation declining.
The bottom line is Powell confirmed that the Fed is about to pivot.
One of the foundational rules of investing is “don’t fight the Fed.” And it certainly appears that the Fed is approaching a policy shift.
If we are, in fact, headed toward a rate-cutting environment in 2023, it will be a massive tailwind for the broad market, even if earnings are disappointing.
On Wednesday, Louis held a free presentation in which he showed how some of the wealthiest folks in America generate massive cash payouts from the markets.
For readers less familiar, beyond helming his investment newsletters here at InvestorPlace, Louis manages money for a handful of high-net-worth investors – the “one percent.” In fact, Louis himself is part of this one percent.
As you’d expect, these very wealthy individuals invest differently than regular investors. Louis’ event focused on how they do it. It’s a unique market approach that focuses on investing for income without taking on excessive risk.
If we are on the cusp of a new bullish market regime thanks to a Fed pivot, this style of investing will be even more lucrative. You can watch a free replay of the event here.
Have a good evening,
Jeff Remsburg
The post Is Powell Paving the Way for a 2023 Bull? appeared first on InvestorPlace.
