12:00 TUESDAY – Bi-Weekly Market Report #235 – 4/16/24
by Robert Holman | www.DefensiveAdvisor.com
STOCK MARKET RATING (THE BIG PICTURE) … 5 (1-4 bearish, 5 neutral, 6-9 bullish). The warning signs have caused me to change my perspective on the market, from bullish to cautious.
The economy and corporate earnings remained strong, and retail sales were very strong. Investors were excited by the AI benefits that could accrue to almost all companies. But, we now see inflation inching upward and ruining things. We could see higher for longer – higher interest rates that is, but maybe not higher stock prices.
Secretary Powell and others at the Fed have said they would like to ease interest rates. But I believe they will take their time. I suppose they could cut rates in June just to save face, but recent economic data and external events have changed everything. The bond market is already moving to higher rates, whereas before it believed the Fed would lower rates.
And then, there is the geo-political realm. To me, Iran half-heartedly attacking Israel would lead markets to rally on Monday morning, which initially they did, but selling by institutions took over. Of course, Israel is already discussing retaliation, and if they do retaliate, won’t Iran want to respond to that?
Instead, I think Israel will be pressured by worldwide powers to accept economic sanctions against Iran as the best solution. With fewer nations purchasing Iranian oil, a shortfall in world oil supply is likely to occur. This could drive oil prices up, maybe another 10-15%, causing inflation to increase by a full percentage point, in my view, as oil is embedded in the price of almost everything we buy and sell. Higher inflation everywhere could very well lead to … well, let’s just say it wouldn’t be good.
If this scenario were to happen, it would take a while to unfold. Of course, I could be wrong about this, but it seems so unlikely this situation will just go away quietly. So, I’ve changed my view to neutral, and am being defensive, by realigning portfolios to protect client funds and profits.
The markets were already losing momentum. Before last Friday, the DJIA-30 index was down 3.4% from its closing high. Even with really strong rallies on Thursday, the S&P-500 was still down 1.1% and the NASDAQ-100 was down just 0.2%. If the above scenario comes about, we could easily see more declines – I’ll take a guess – maybe a further 9% decline in the Dow (to 12% overall) and even greater declines in the other two indexes (more like 15% and 18%, respectively).
I’m way ahead of events with these thoughts, but the market was already slipping. In my view, there is just too much risk to hang around with exposed positions. So, I took action and traded in my high-flyers (taking very good profits by the way) but I am staying with oil and gold. Small caps are likely to struggle in this environment. I’m also sticking with financials for a while. Having a good defense can be as important as having an effective offense.
MAY BE OF INTEREST: Beyond Wills: The Essential Estate Plan Checklist (For Everyone!)
PORTFOLIOS … After reading this report, if you are not sure what to do to take advantage of these conditions, you may go to my Secure Email to send me a messagel, and I’ll reply with the information you need.
TO MY CLIENTS … THANK YOU FOR YOUR TRUST. We’ve had great success since we started this RIA in mid-2018 and have done better than the market since that period.
Learn from the Bible: Proverbs 15:22 MSG - Refuse good advice and watch your plans fail; take good counsel and watch them succeed.
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Opinions in this post are for general information only. They are not intended to provide specific advice to, or recommendations for, any individual without our complete knowledge of that individual’s total financial profile. No strategy assures success or protects against loss. Past performance does not guarantee future results.