Inflation makes dramatic progress below 8%. Is it time to become super bullish? Not so fast.
Like this email if you are ready to identify whether the current recovery rally is the real deal or another major fakeout.
Note to my Friends here: Finally. Inflation is under 8%. To celebrate Inflation falling below 8% (hopefully for good), I will be sharing my mid-October research note where I discussed risk assets most likely being poised for a large bounce when market sentiment brought havoc to investor psychology (SPX was at ~3600). Read it now so that you can understand my views. I sent this note on Patreon in mid-October. This is my thank you 🎁 to you for being on my public email list where I promised you exclusive content periodically.
My next November Mid-Month report will come out on November 16th. Recent opinions shared have highlighted the potential of a major market bounce, which has materialized. To proactively assess where we see markets heading next, come join us.
Nothing is ever 100% in the market, but here is a public post hinting at my sentiment in late October. I felt reasonably confident the market had positioned too bearishly.
So far so good. But if my thinking is right, I think the worst for the real economy is yet to come. Whether the stock market will follow remains to be seen.
Dear friends from my Public & Private Community,
This week we witnessed a dramatic shift in sentiment in U.S. markets. Thank goodness.
Perhaps the worst is over. Or perhaps this is just a brief pause in the bearish sentiment that has gripped markets over the past 2 months.
I know everyone wants a simple and direct answer, but the truth is that even the Fed doesn’t know whether the U.S. economy is in for a soft, mild, or hard landing.
In this environment, I’ve learned that being too opinionated or too one-sided is a recipe for disaster. Even though I’ve done a LOT of homework on markets, there will always be an aspect of uncertainty.
Remember: the best we can do is choose the highest-quality companies that are appropriate for this environment. In our Community, I’ve done my part to highlight these opportunities (which have largely made quite a number of people happy, to say the least).
A quick summary:
The S&P 500 nearly reclaimed the 4000 level, last seen in September (roughly 6 weeks ago)
Markets balanced out their advance, with tech staging a large advance after CPI finally came in under 8%.
Significant bearish positioning in short-selling and put option activity was great challenged on Thursday and Friday.
The market is now pricing in 4.5-5% for 2023 Fed Funds rates again. Earlier this week, markets had priced Fed Funds rates to be north of 5%.
But now let’s discuss the real economy. Which…is much more sobering.
We must consider the real economy because the stock market can’t go significantly higher IF the unemployment rate starts to skyrocket.
Think about it: the unemployment rate WILL impact consumer confidence. And that will affect spending.Shall we remember that consumer spending is 70% of the U.S. economy?
We saw in recent weeks that there are now mega large scale layoffs at the following areas:
The mega-cap Advertising giants Meta, Snapchat, and Twitter.
Substantially slower hiring plans at even the stalwarts Microsoft, Google, Apple, and Amazon.
Real estate and mortgage departments at many leading U.S banks are having headcount slashed significantly
Startup tech companies may not be making headline news, but these companies have gone through major headcount reductions
Up until now, consumer spending has held up very well (an enigma to me personally).
Everywhere we go, it seems the consumer is still fine and strong.
But once this activity dries up…we had better be careful.
In my mind, stock market participants are playing musical chairs. In case you have never played this game before, I’ve included both an image and definition for you below.
In practical terms, this means that the landscape is creating a situation where some folks are once again given opportunities to potentially de-risk in an environment that may suddenly turn again. The longer the rates stay elevated, the greater the build-up of the stress in the system may be.
Just look at all the layoffs that have happened…
And Fed Funds rates are just sitting at ~4% or so.
The good news is that I personally don’t expect armageddon in the stock market like this week or anything, but the bear may come back at some point in the future (which I will be closely monitoring).
Look, I’m just as happy as you are after this past week.
One of my top defensive ideas given inside Patreon was Dollar Tree, a name that has skyrocketed from 135 to 160+ over a 2 month period
Please remember that my specialty is intermediate-term investing. It takes several weeks to a couple months for my ideas to play out (Sometimes longer).
I’m working on evaluating shorter-term timeframes, but this is still a work-in-progress. I believe in the marketplace, there are many providers who can make better short-term calls than me. My community does not focus on short-term calls whatsoever. However, when it comes to intermediate-term investing (multi-week/multi-month), I believe my strategy truly, truly shines.
Do not chase Dollar Tree here. The easy money on the long side has been made.
Many people publicly think my top China idea is Alibaba. And Yes, I obviously do like Alibaba. But members and friends know that my top China idea inside Patreon has been Trip.com. To understand why, join us and read my research.
I cannot provide my top private ideas publicly before I’ve first shared it privately. That wouldn’t be fair to members inside.
Obviously, don’t chase TCOM after its surge.
But yes, I understand the entire China large-cap internet landscape inside KWEB - not just Alibaba.
If you’re looking for high-quality China investment research (KWEB constituents), I can definitely help. I don’t cover small-cap China names. Only large cap inside KWEB ETF.
I’m going to wrap up this public note with a chart of the S&P 500. And while I am a Fundamental and Macro analyst at heart, I do have to use technical analysis to help identify risk/reward.
Looks like we are approaching a major downtrend line. I hope we can break past this line.
If not…Careful my friends, careful.
Join us for strategy, insight, and research inside my Community.
Don’t be passive. Be proactive. Bear markets are the ultimate environment to pick up great companies at long-term amazing levels.
Things I wish to mention:
Substack vs. Patreon: Up until this point, I’ve been hosting my Investment Community on Patreon. Going forward, I will also be using Substack to host the same private content. The reason is that I think some folks simply enjoy the long-form content and the Substack user interface is potentially better for some people who prefer to get the research in purely email format. I will continue to produce very thoughtful and premium free public emails like this on a weekly (or bi-weekly basis). So if you’re on my public list, don’t worry - you will still get amazing content. It’s just that if you want to support my research efforts directly on Substack, you will soon have an opportunity to do so. Thank you in advance.
Patreon members do not need to move over. Absolutely no action needs to be taken. The research will be exactly the same. It’s just that new comers will have an opportunity to choose which platform they’d prefer to receive the research content going forward. I’ll make an announcement on this in the near-future.
Note on 1:1 Chats inside Patreon: Going forward, I will be checking messages 2-3 times per week. I need to focus on my research to identify opportunities for the entire community. This process takes a significant amount of time. I will always get back to everyone who messages me but I do need several days when research gets very busy. Thank you! 😊
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❤️ this email if you enjoyed the read. And see you in my next Youtube Video.
Your Investment Strategist,
Larry