The S&P 500 (SPY) tumbled -1.86% on Halloween given the specter of large tech companies announcing large increases in AI investing. This sounds like a good thing, right?
Yes, in the long run as it likely will pave the way for great innovation and profit growth. But in the meantime, that additional cost will weigh on earnings.
This had the Magnificent 7 and other tech stocks in the tank on Halloween. Gladly things were not as scary for the rest of the market...or our more resilient POWR Ratings stocks actually did very well on the day.
More importantly, we will discuss the events in the days leading up to the next Fed meeting on 11/7. Read on for more...
Market Outlook
As expected, investors are pressing pause on further stock advances til after the election. This is pretty common behavior. In fact, during the last 3 Presidential election cycles there was a 5-10% correction in the months leading up to the November election. So just consolidating under the highs is not such a bad outcome.
Even more pressing than the election is what the Fed will do at their next meeting on November 7th. Right now, CME calculates 95% odds of a 25 point basis cut.
Yes, that is certainly possible. But with all 4 of the most recent inflation reports being higher than expected, I think the odds of no cut are much higher. As in greater than 50% likelihood.
Traders need to remind themselves that the Fed is filled with academics. Learned individuals. AKA slow as molasses.
So given how long it took them to cut rates in the first place...and given the recent increase in inflation while employment stays strong...points to them being patient once again. Meaning I don’t think they are going to cut again until they see more signs of inflation ebbing towards their 2% target.
For example, today their favorite inflation report, Core PCE, came in at +2.7% inflation. Unchanged from last month when declining to 2.6% was the consensus estimate.
The fact that this key data point didn’t go lower, along with troubling signs in the most recent CPI, PPI and Average Hourly Earnings (wage inflation) has me expecting no cut at this meeting.
This is not a call to be bearish. The long term bull market is still in place. Especially with healthy GDP growth in hand (+2.8% in the 3rd quarter).
However, with the big stock gains already in hand from the October 2022 low...and lofty PE of the S&P 500 nearing 22...then it’s hard to make a case for more impressive gains.
Sure we will likely have a bullish catalyst from the finalizing of the elections as we normally is the case. Then tack on a little more upside from the seasonal Santa Claus rally and we are likely touching 6,000 by the end of the year.
After that, I see investors sitting on their hands in terms of broad market advances. Hopefully that means there will be a shift towards value.
That would be most beneficial for small and mid caps who provide a much more appealing value proposition with a combined PE under 16. Far better than the 22 of large caps...and below the long term average around 18.
Do not think this means that just any small stock will rally. You still need healthy growth to show up with each quarterly earnings report. Passing that exam with flying colors will be the hallmark of stocks that get rewarded in 2025.
Gladly our POWR Ratings system looks at 13 different measures of growth and 31 measures of operational excellence (Quality) that point to stocks more likely to have earnings beats and outperform the market. The sum total of that has led to an average annual gain of +28.56% a year going back to 1999.
My current favorite POWR Ratings stocks are shared below...
What To Do Next?
Discover my current portfolio of 11 stocks packed to the brim with the outperforming benefits found in our exclusive POWR Ratings model. (Nearly 4X better than the S&P 500 going back to 1999).
All of these hand selected picks are all based on my 44 years of investing experience seeing bull markets...bear markets...and everything between.
And right now this portfolio is beating the stuffing out of the market.
If you are curious to learn more, and want to see my 11 timely stock recommendations, then please click the link below to get started now.
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Wishing you a world of investment success!
shares rose $0.01 (0.00%) in after-hours trading Thursday. Year-to-date, has gained 20.76%, versus a % rise in the benchmark S&P 500 index during the same period.
About the Author: Steve Reitmeister
Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.
Investors: Are You Ready for November? StockNews.com
