Rather than hold forth with my own insights, it's time I turn the microphone over to you. Many subscribers have been sending in some great questions about the markets, crypto and individual stocks in the last handful of days.
Let's get started by answering this one (many folks have been asking it in various forms) about the impact of the consumer price index for October - the report that kicked off the huge rally on Thursday and Friday:
Q: Jeff, I'm confused. October CPI comes in weaker than expected at 7.7%. That's still much higher than a year ago. So why the big rally? Should I be getting bullish?
Ahmed, here's what I wrote to premium subscribers on Thursday morning when the stock market started to soar in response to that CPI report:
...it is what it is. I'm as suspicious as anyone else. We can question the ability of today's rally to last or fade in coming days. But we won't really know who's right and who's wrong until after the smoke clears from the battlefield
By then it's too late.
In fact, I recommended one stock (sorry, for premium subscribers only) in that same report. I recommended 2 more in another buy alert on Friday. So speaking for myself, am I getting bullish?
I would call it...less bearish.
So the idea is to start dipping some extra toes in the water. It's a calculated risk, with a recognition that we are still way, way early in this process.
The way I view these things - if the rally fades next week, then fine, we'll eventually cut our stocks for small losses and move on. The market would be much lower and we'd continue to hold large amounts of cash on the sidelines.
On the other hand, what if the rally keeps extending through the holiday season of the next 6 weeks or so? I doubt the market keeps going straight up like it did last Thursday and Friday. But rallies have a way of unfolding like a Japanese origami - constantly surprising us.
So I'm trying to keep an open mind on these things. If I'm wrong, I can limit my losses. If I'm right...we'll have some nice gains to show for it.
Q: Jeff, isn't this just another bear market rally?
It could be. What we don't know is how long it lasts - until next week, next month, until January, or into the middle of next year.
If we look at it that way, then hopefully you can see why it may still be worth taking some risk and buying certain stocks on the prospect of not so much "buy-and-hold" but "buy-now and sell-later at a (hopefully) higher price."
Keep in mind that markets tend to feed on waves of unanticipated emotion. Remember 2021? Folks were highly optimistic...but a mess of pessimistic news was hiding in the wings.
From the same perspective, what optimistic news might be hiding in the wings for 2023?
Inflation: It's not really the headline CPI that counts, but what it says about future expectations.
Wall Street is betting that if October's inflation pressures (registered as 7.7% in the CPI report) was weaker than expected, maybe November and December's reports will be as well.
Those kinds of reports just feed into the optimistic narrative, whether it's justified or not.
Ukraine peace negotiations?: Last week, Ukrainian forces took control of Kherson, a strategically important port city and one of 4 important "oblasts," or administrative centers, in the eastern part of the country still held by Russian forces.
Yet it appears the idea of peace talks is getting some new traction. It includes Ukraine dropping an important prior demand from its list - that Russian president Putin needs to be out of power before talks can begin.
Federal Reserve rate hikes?: If subsequent CPI reports show a similar trend, they could give the Fed an excuse to take a less aggressive pose with interest rates. So I'm starting to see headlines like this one in the media:
But again, we have to remember that markets move in anticipation of future events.
So if the narrative of future "fewer or no rate hikes" takes hold - we could see the market continue to gain ground at least to mid-December, in anticipation of the next Fed meeting on December 13-14.
Maybe the best way to judge that sort of thing is to look at yields of the US 10 Year Treasury note - yields tanked (which means that bond prices went up) - as traders began betting that government bond prices will continue to rise if the Federal Reserve moves to the sidelines on rate hikes.
So I'm sorry for the long answer Sissy, but these are the factors (in my opinion) that will likely determine whether last week's sharp rally was just another "fake-out rally" or something longer lasting.
Q: What are the best stocks to buy now?
In this environment, Wall Street pros typically will say "this sector should outperform" or "that sector should do well" - but no one really knows. So I'm trying to spread out my ideas to premium subscribers, so that we're not concentrated in any one particular sector.
For example, I made 3 recommendations last week.
Of those, 2 were large-cap stocks in semiconductors and consumer finance. I also recommended a 3rd stock that's a promising, largely-unknown small-cap stock that I think could start moving higher from here.
But I've also recommended a South America-based gold mining stock recently, as well as a stock with its headquarters in China.
From a charting perspective, my favorites are stocks that have - at least to my eye - either hit "capitulation lows" and bounced higher - on the presumption that they will now stabilize at higher prices off those lows and then work their way higher still.
Here's one - minus the name and stock prices - that's an example of what I'm looking for:
And here's another type that I"m interested in...a stock that perhaps hit its low months ago, revisited the low, and now appears ready to make a recovery move:
I think the main idea is to NOT jump in to the market expecting that whatever stock one buys...is going to immediately start tallying profits as it moves higher and higher. That's a recipe for disappointment. Most stocks are still far below their 200 day moving averages, and are going to be prone to steep selloffs and declines that are going to seem scary.
The bear market didn't happen overnight. Whatever sort of recovery this is - or is NOT - we're going to need to be patient, and keep our eye out for risk, as we see what sort of shape it takes.