In this post, I’ll focus on setups that I’m monitoring for both long and short positions. With a chart and short write-up, this is a quick way to scan and plan potential trades.
These ideas are the end result of my process to identify stocks offering the right combination of growth fundamentals along with a proper chart setup. Live alerts are sent to Traders Hub members only.
Stock Market Update
A pair of reports showing moderating inflation is helping keep the outlook for monetary policy from turning too hawkish. Last week featured the Consumer Price Index (CPI) and Producer Price Index (PPI) for the month of July. The headline CPI figure came in at 3.4% compared to last year while the core figure that excludes food and energy prices increased by 2.5%. The headline PPI jumped 4.7% while the core reading registered 4.2% year-over-year. The readings all around continued moderating from June’s pace but remain well above the Federal Reserve’s stated target of 2% annual inflation. In fact, the core CPI measure hasn’t registered a reading below 2% since early 2021. The chart below shows various core components for the CPI, including the “supercore” made up of core services ex-housing to track labor-intensive industries.
While producer and consumer inflation levels remain above target, the falling rate of change compared to prior months is boosting hopes that interest rate hikes by the Fed will either be delayed or lessen in magnitude. Current market-implied odds favor the Fed holding rates steady at the next meeting in September, followed by one hike before year-end (chart below). Following one quarter point hike, the Fed is projected to hold rates steady through next year. However, it’s worth noting that the current level of the 2-year Treasury yield sits 0.42% higher than the current upper target of the fed funds range, implying a slightly more hawkish take from the bond market.
The current economic and liquidity backdrop should remain supportive for equities. While uncertainty ahead of midterm elections could present volatility, the combination of loose financial conditions (boosted by renewed optimism around the Fed) coupled with rising forward earnings estimates should be bullish tailwinds for stocks. Keep reading to see:
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