I don’t think they will do the five to six hikes that many are expecting, but either way, investors need to be patient before this new rate-hiking cycle ends, or at least until the Fed pauses their hawkish rhetoric. The Fed is planning their first quarter-point rate increase at their upcoming meeting on March 15-16, and there will likely be subsequent, gradual increases later this year. They began talking about ending their bond buying program, raising rates in 2022, and possibly reducing their balance sheet. However, in December of 2021, this all changed. They continued this accommodative stance with $120 billion in monthly bond purchases. They not only kept interest rates at near-zero, but they also provided tons of liquidity by purchasing more treasuries in the six weeks following the pandemic than they did in the nine years combined from 2009-2018. The Fed to change their hawkish stanceĪround the pandemic lows, the Federal Reserve created an incredibly accommodative environment for equities. There’s nothing wrong with that, but I prefer to see money being put to work in “risk-on” sectors, and small and mid-cap stocks to tell me that large institutions are backing a new uptrend. The main stocks that are working are commodity related and cyclical names. Right now, there’s almost nothing looking good in the growth area. For example, the main reason I turned positive around the 2020 lows was that my screens produced tons of growth stocks in sectors such as Software, Semiconductors, Medical Products, and Biotech. The more stocks I find, the more bullish I am on the markets, especially if these stocks come from a broad number of sectors. I screen the market every night looking for solid fundamental companies building strong technical bases. The main factor I use to judge the health of the market is the price action of growth stocks. In order for me to feel more confident about a sustained, new uptrend, and increase my exposure to equities, I need to see five things happen. I’ve been defensive since then and maintained a high cash position for my clients. Around the pandemic lows in 2020, I wrote that even though the virus will get worse, “i t doesn’t mean the stock market has to go lower.” I remained bullish throughout the strong run but turned cautious in mid-December 2021 for two main reasons: The market technicals were breaking down and the Fed became increasingly hawkish.
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