“Do As I Do, Not As I Say” By Michael Salvatore, Editor, TradeSmith Daily In This Digest: Do as Powell does, or as he says? The most hated bull market of all time… Why that’s a massive buy signal… The seasonality bottom is this week – are you ready? These Power Factor stocks belong on your watchlist… Powell can’t decide if he’s starting a party or ending one… Two months back, Federal Reserve Chair Jerome Powell declared “mission accomplished” on the inflation problem. He celebrated with a 50-basis-point shot in the arm to the stock market and economy, and another 25-point cut earlier this month. This second cut really blindsided us. It came amid what’s now a three-month streak of worsening inflation data… along with a rally in long-term Treasury yields that all but invalidate the Fed’s moves. The actions give the impression of J-Pow “making it rain” with a fistful of Benjamins. But the words come from a penny-pinching Grandma Gertrude slowly counting coins in the grocery store checkout line. Here’s Powell’s words from his Thursday speech, via WSJ: “The economy is not sending any signals that we need to be in a hurry to lower rates,” Powell said in remarks prepared for delivery at a talk in Dallas on Thursday. “The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully.” The S&P 500 lopped off about a quarter of a percent of its value after this story was published. So, pardon me, Powell… but which one is it? Seventy-five basis points over two meetings sounds like a hurry to me. Especially when inflation has only moved higher since the first cut. The message received is, “We want only to look like we’re being careful and studious. Meanwhile, we’ll be doing donuts in the parking lot.” Either way, traders pared their bets on another cut in December. The majority still think we see 25 points of cuts, but a growing minority think we’ll see a pause.
Whatever happens, the real action is in the Treasury market. We can think of bond traders as the smart money. They’re the ones setting the price of long-term credit in the economy based on what they expect for inflation. And right now, the uptrend in 10-year yields is undeniable:
My point here is the inflation fight isn’t yet won, at least not if we buy the Fed’s 2% target. Either the economy will come to live with north-of-2% inflation, or we’ll have high rates for many, many more years. Most likely, though, it will be both. That might be why money market investors won’t budge… Today we have some egg to pull off our face. But we’ll attempt to make an omelet out of it. All year long, we’ve had our eyes glued to the chart of money market account balances. Think of this as sidelined cash – the money that’s too scared to enter the market, choosing instead to earn about 4.8% a year. (Never mind that the S&P 500 has returned roughly five times that in 2024.) We expected these balances to start ticking down as the Fed cut interest rates, and find its way into underloved areas of the market – high-yield areas like real estate investment trusts, rate-sensitive sectors like small caps, and more. Instead, balances have risen to an all-time high of $7 trillion. From Bloomberg: The $7 trillion mark follows months of consecutive records in money-market assets, offering a rebuttal to questions over whether the industry could remain in vogue as Federal Reserve officials pulled interest rates down from a two-decade high. Investors have continued to pile into money-market funds after U.S. policymakers cut their benchmark by a half-point in September and a quarter-point this month largely due to their superior yields relative to other instruments – especially bank deposits. The extent of the Fed’s easing cycle also remains to be seen given evidence of a resilient U.S. economy and the inflationary policies that have been touted by President-elect Donald Trump. Here’s the thing this tells me above all… and how we’ll cook our omelet. This bull market is absolutely hated, disbelieved, and ignored. And when a bull market is hated, disbelieved, and ignored… that makes me extremely bullish. It reminds me a lot of when I told my friends to buy bitcoin a year ago, as it was breaking out, and their first response was to assume I was a scammer. Bitcoin is up by almost triple since then. About $7 trillion of cash is painfully sitting out some of the best years to be an investor of all time. On a real basis, savers are earning less than 2% a year for their trouble. So there’s the guy beating the market, picking great stocks… there’s the guy matching the market in index funds… and then there’s the guy on the sidelines in money market funds earning one-tenth of the market, inflation adjusted… if they’re lucky. I don’t know about you, but the last thing I want to be is that third guy. Point is, stay invested. Use TradeSmith’s tools, like our recent integration of Louis Navellier’s Stock Grader, to find great stocks to buy that will beat the market. Follow the big, market-beating trends we cover here in TradeSmith Daily, like nuclear energy, small caps, and bitcoin. And realize that, eventually, all that sidelined cash will throw up their hands and realize that 2% a year isn’t acceptable. When that cash really starts to move, then you can start rethinking how far the market has run. But we’re not there yet… not even close. That said, I did raise some cash last week… I plugged a few losing or sideways positions of mine into Louis Navellier’s Stock Grader and dropped any of them that graded a D (Sell) or F (Strong Sell). For any subscribers out there, this is a good monthly-or-so ritual. Stock grades change all the time, and it’s good to check in on both your winners and losers. But what prompted me to do this was the seasonality chart of the SPDR S&P 500 ETF (SPY) during election years. Take a look:
What you might notice is, during the last seven election cycles, stocks have on average taken a quick trip down this week. Fifty-seven percent of the time, stocks dropped an average of -1.26%. Though, history also says that’s a good time to buy. After that quick drop, buying on this Wednesday, November 20, and holding through the end of the year has seen an average return of 4.78%… with 71.43% of the past cycles being positive. I’m not saying the ideal time to buy will be precisely this Wednesday. Seasonality isn’t a crystal ball – it’s a tool to show you where to look, and when. But we can’t deny that it’s called “the post-election rally.” The S&P 500 hit 6,000 for the first time on that surge. What comes next, according to seasonality, is a drop that would take it back down to about 5,770. Funny enough, that’s the lower bound of the rising channel we identified on Friday:
I think we’ll hit that lower bound… and then bounce off it. So, a drop this week should be treated as a buy opportunity. And since I know you’re looking for ideas… It’s Monday, so that means it’s time to check in with Jason Bodner’s Quantum Edge Hotlist. This list screens for the three Power Factors we discussed last Friday – fundamental quality, high growth rates, and growing share prices. If you want to buy great companies that are going up and have unusually high buy volumes, this list is required reading each week. Jason compiles the top 10 scoring names by these Power Factors, as well as the bottom 5. There are a few new names to point out in either list. The top 10 has a lot of familiar names like IMAX, AVPT, WHD, ANET, and APO. But some new entrants are Payoneer Global (PAYO), Macom (MTSI), Vita Coco (COCO), and Genesis Healthcare (GEN):
The bottom 5 list was also a shake-up last week. Infamous oil firm BP (BP) snuck into the top 5, joining stalwarts Moderna and Green Plains. But materials company Glatfelter (MAGN) and America Movil (AMX) took the two bottom spots. As you look to buy into a likely dip this week, look into the top names on the list. All of them have strong fundamental and technical pictures, making great buy candidates. Though, if you want to catch the latest readout later this afternoon, you’ll need to subscribe to Jason’s newsletter Quantum Edge Pro. Go here for more on that. To your health and wealth, Michael Salvatore
Editor, TradeSmith Daily P.S. Just about everything rallied after the U.S. elections were settled quickly and decisively in Donald Trump’s favor… from the Russell 2000 small caps to bitcoin to the Dow Jones Industrial Average. But you don’t have to settle for “average.” You can buy the stocks that are poised to emerge as market leaders – while others start to deflate and come back to earth. Over at InvestorPlace, Louis Navellier has an Accelerated Profits strategy designed to help his readers identify these stocks and ride them higher for serious short-term gains. And we’re now integrating the Navellier stock grading system into TradeSmith Finance so you can trade these signals yourself. What folks are finding out is Louis’ system is tailor-made for the times – he’s finding these fast-moving stocks left and right. TradeSmith CEO Keith Kaplan recently sat down with Louis to give a presentation all about it, which you can watch right here. | 