The S&P 500 (SPY) has been reaching new highs while the rest of the market appears weak. This trend has been a major theme in 2024, especially after the April pullback, mirroring what was seen in 2023 until the bull run that began in November and expanded to smaller stocks.
This challenging environment makes it difficult for the average investor to gain traction. The economy is showing signs of weakening, with the Atlanta Fed’s GDP Now model predicting a lower GDP growth rate for Q3. The recent ISM Services reading was lower than expected, contributing to the downward revision.
Some see the silver lining in this economic slowdown, as it could alleviate inflationary pressure and potentially lead to the first Fed rate cut. However, there are concerns about whether the Fed’s actions might prolong the downturn and lead to a future recession.
Despite the increase in the unemployment rate, which historically has been a precursor to further rises, some believe that the Fed is intentionally trying to cool down demand to curb inflation. The expectation is that any further softening of the economy will prompt the Fed to lower rates to stimulate growth.
Many anticipate a rate cut at the September 18th Fed meeting, with some suggesting a possible cut by November 7th at the latest. The Fed is known for its transparency, so any shift in language indicating a potential rate cut will likely precede the actual action.
Recent comments from Fed Chair Powell hint at a more positive outlook, with improvements in the inflation picture possibly paving the way for rate cuts. As economic data continues to soften, the likelihood of rate cuts in the coming months increases.
When rate cuts do occur, the market is expected to react similarly to the November 2023 “dovish tilt” by shifting investments from safer, large-cap stocks to riskier, higher-growth options that benefit from economic expansion.
Overall, the outlook is positive for utilizing POWR Ratings to outperform in this changing environment. Consider exploring the author’s portfolio of 11 stocks and 2 specialty ETFs for potential investment opportunities.
In conclusion, the current market dynamics suggest a shift towards more aggressive investment strategies in anticipation of potential rate cuts and economic expansion. Stay informed and consider leveraging POWR Ratings for investment success.