Ready for the Stock Market Pause that Refreshes?

The S&P 500 (SPY) is up over 20% year to date. Combining that with lower inflation readings and a dovish tilt by the Fed confirms why so many investors were bullish even when recessionary storm clouds were forming. So what is the market outlook now? And what are the top stocks and ETFs to invest in now? Steve Reitmeister shares the answers below.

For the first time in a long time, the Fed did almost exactly what investors thought with their 7/26 announcement. Beyond the expected quarter point rate hike was the start of a “dovish tilt” in their language that paves the way to end of the rate hike cycle.

So stocks exploded higher right?

Not exactly. Let’s break it all down in this week’s commentary below…

Market Commentary

This is one of the simpler Fed announcements to break down. They did exactly what was expected. That starts with a 25 point rate hike followed by what appears to be a dovish tilt in the language used by the Fed.

Here is the key statement from Powell at the press conference:

“The staff [economists from the central bank] now has a noticeable slowdown in growth starting later this year in the forecast, but given the resilience of the economy recently, they are no longer forecasting a recession.

My base case is that we will be able to achieve inflation moving back to our target without the kind of really significant downturn that results in high levels of job losses that we’ve seen in some past, many past instances.

The Federal Funds Rate is at a restrictive level now, so if we see inflation coming down, credibly, sustainably, then we don’t need to be at a restrictive level anymore… You’d stop raising [rates] long before you got to 2% inflation and you’d start cutting before you got to 2% inflation, too.”

Boiling it all down this could very well be the last rate hike followed by a pause for one or more meetings. If the data says that we are on the right path back towards 2% inflation, then they could start the process of lowering rates from their current perch (which is the highest level in over 20 years).

This sounds like a reason to celebrate…and yet on Thursday stocks had one of their biggest one day selloffs in quite a while.

Why?

Some commentators point to GDP at +2.4% on Thursday being a bit hotter than expected. If that heats up further it would likely keep inflation higher than the Fed would like leading to another quarter point rate hike. (Odds currently point to a 33% chance of that happening by years end).

Or a simpler explanation, and likely more accurate reason is to simply say, “buy the rumor, sell the news”.

Meaning that many investors place their bets in anticipation of future events. And then sweep those profits off the table as things go according to plan.

At this stage the healthiest thing that could happen for this bull market is that the S&P 500 consolidate under 4,600 for the S&P 500 (SPY). We have run very far…very fast. And now is the perfect time to have a “pause that refreshes”.

Part of that refresh cycle would see more profits trimmed from overripe mega caps and rotated to deserving small and mid cap stocks.

What makes them deserving?

The healthiest fundamentals as likely proven by the Q2 earnings report. Plus the 118 point inspection that comes from our proven POWR Ratings model. That creates the perfect transition to the next section…

What To Do Next?

Discover my current portfolio of 5 stocks packed to the brim with the outperforming benefits found in our POWR Ratings model.

Plus I have added 4 ETFs that are all in sectors well positioned to outpace the market in the weeks and months ahead.

This is all based on my 43 years of investing experience seeing bull markets…bear markets…and everything between.

If you are curious to learn more, and want to see these 9 hand selected trades, then please click the link below to get started now.