Hot Inflation Means A Rough Ride For Bulls Ahead…

by Ana Lopez

It has certainly been a tough week for bulls in the S&P 500 (SPY). In the past 10 days, we have now had three major reports, all showing higher-than-expected inflation. And while it looked like the bulls could shake off the first two, the evidence is mounting in favor of additional rate hikes, which could make a bull victory much more difficult now. This is what I mean.

(Enjoy this updated version of my weekly commentary originally published Feb. 24e2023 in the POWR Shares Under $10 Newsletter).

Market Commentary

Late last week, both CPI and PPI reported rising month-over-month prices, as well as annual price increases that were larger than economists had expected.

Still, bulls held up pretty well and the S&P 500 (SPY) ended the week just a few points below the important 4,100 mark.

Despite the Bears getting some big wins last week, it still looked like this latest round of “tug of war” was for everyone…

And then the Fed minutes were released. And a third inflation indicator (and the Fed’s favourite) – the personal consumption expenditure index (PCE) – also came out hotter than anyone expected. And more Fed officials publicly expressed concern that inflation remains too high.

Look, I’ll be the first to say that the bulls put on a surprisingly strong showing for the first few weeks of the year. But this will be a big hurdle to keep the rally going.

But I’m not going to say it can’t be done either. These bulls always seemed a little delusional. Not many “bullish” events happened… people were just ready to move into a more “risky” environment.

We’ve also now seen bearish readings from all three signs I’ve been spotlighting recently: the 4,100 level (breakdown below), the January CPI report (hot), and the CME FedWatch Tool (number of people seeing a rise). of 50 bps expected in March has almost tripled from 9.2% to 27%).

They say the market is “climbing on a wall of worry”. But how high is too high?

I’m not 100% sure. Honestly, anyone who tells you they are is selling you a whole lot of, well, something.

Either way, the bulls will have to put on quite a show with so much evidence pointing to additional rate hikes and a higher closing price.

So I want us to take a moment to prepare our portfolio for the next leg lower. I’m not ready to sell anything today, but I spent some time this morning creating trade triggers for most of our positions.

These will help us control losses and protect the gains we have worked hard for over the past few months.

Conclusion

The best thing we can do right now is to be prepared. Stocks under $10 are such a strong group because they give us a significant advantage over big stocks that are priced to the penny.

But they are also prone to greater price swings during sales. That’s why we’re keeping things tightly locked down as we navigate to what happens next.

What to do now?

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All the best!

Meredith Margrave
Chief Growth Strategist, StockNews
Editor, POWR Newsletter Stocks Under $10


SPY shares closed Friday at $396.38, down $4.28 (-1.07%). Year-to-date, SPY has gained 3.65% versus a percentage increase of the benchmark S&P 500 index over the same period.


About the author: Meredith Margrave

Meredith Margrave has been a well-known financial expert and market commentator for the past two decades. She is currently the editor of the POWR growth And POWR shares under $10 newsletters. Learn more about Meredith’s background, along with links to her most recent articles.

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