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
Although new Federal Reserve Chair Kevin Warsh promised to change how the Fed communicates with the capital markets, his first keynote speech at the Jackson Hole Symposium contained few surprises. Warsh sounded hawkish in describing inflation as running above target and reiterated the Fed’s need to focus on price stability, but stopped short of hinting at any policy action at the next rate-setting meeting in September. Comments around price stability mostly echoed statements that Warsh has previously made following Fed meetings. While equities didn’t see much intraday volatility following the address, it’s worth noting that odds for a September rate increase versus holding steady slightly favor a hike compared to odds favoring no change in rates before (chart below).
While declining to provide any sort of forward guidance, Warsh did note that financial conditions could not be described as restrictive. If anything, overall financial conditions are running at extremely loose levels based on a measure released by the Fed’s Chicago district in the chart below where a reading below zero indicates looser than average conditions. Loose conditions point to relatively cheap and plentiful credit, which is associated with positive economic activity and is a tailwind for asset prices. Extremely loose conditions should give the Fed plenty of cover to raise rates at a gradual pace if it chooses to do so. It will be hard to justify keeping rates steady with an economy showing strong activity while the most recent PCE price index came in at 3.7% in July compared to last year. Inflation has remained above the Fed’s 2% target for over five years.
While stocks could be vulnerable to short-term volatility around uncertainty to the rate outlook along with approaching mid-term elections, it’s hard to see a tightening cycle repeating 2022’s pace of rate hikes. Loose financial conditions and evidence of positive economic activity that supports the earnings outlook should keep the bull market moving forward. Keep reading to see:
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