by Robert Holman | The Defensive Advisor | www.defensiveadvisor.com
STOCK MARKET RATING … 3.0 (0-4 bearish, 5 neutral, 6-10 bullish). Still no change in rating. The market is acting bullish … but with inflation running 6%or more, how do we know the Fed will njoy6t raise interest rates to 6%? Or, 8% to achieve a real rate of interest of 2%? I think investors may be missing the mark, not understanding what the Fed has to do to stop inflation (as opposed to slow it down).
EQUITY MARKETS and the ECONOMY … Stocks have been behaving well because the inflation rate has been coming down, and many think the Fed is targeting a soft landing. I think the Fed wants to move interest rates to where there is a real rate of interest (Fed interest rate – CPI inflation = real interest rate). The trick is … everyone believes the effects on Fed rate changes are not seen for up to 18 months. So, what rate today is 2% greater than the inflation rate 18 months from today?
First, we know the Fed is standing ready to tolerate an unemployment rate that peaks at 4.4%. We are not there yet, but again the target is where will it be 18 months from now?
Second, we know that the Fed’s trend of large interest rate increases will be slowing down to a more moderate pace of interest rate hikes. But there is a lot of open debate and speculation as to when that will be.
Third, we know that technical indicators are emerging in several places that show a favorable time for market re-entry. But, if the fundamentals change, so will the technical. And key inflation reports are just ahead that could alter the perception of the trend of future rate hikes.
While I’m tempted to raise my market rating several notches, I want to see some more evidence showing that would be the right thing to do.
PORTFOLIOS … After reading this report, if you are unsure what to do with your portfolio, call me to discuss your circumstances and I’ll explain what ought to be done to help your situation.
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TO MY CLIENTS … THANK YOU FOR YOUR TRUST. We’ve had great success since we started this RIA in mid-2018 and are doing better than the market return since that time.
Learn from the Bible: Proverbs 15:22, 21:5, 22:3, 27:12 and 3:56, Joshua 1:9, Ecclesiastes 8:7, 1Chronicles 12:32 and 29:11-13, and James 4:13-16. Also, Proverbs 12:5, 15:22, 21:5, 1 John 4:1, Ephesians 1:17
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