Now that the noise of the election season is over, it is time to return to fundamentals. That means the economy and Fed policy. The good news is that despite considerable uncertainty, we find these key fundamentals working in investors’ favor. I like the Invesco S&P SmallCap Momentum ETF (XSMO) here, advises Brian Kelly, editor of MoneyLetter.

Economic reports have been mostly “Goldilocks,” meaning not too hot or too cold. And the Fed is continuing to cut its policy interest rate, albeit most likely at a slower pace than expected. We are cautiously optimistic that investors will nudge aside high valuations until 2025, setting the stage for another Santa Claus rally.

Here in the US, the word we keep coming back to regarding the economy is “resilient.” It bears repeating that the consumer has been the backbone of this condition. For confirmation, take a look at the retail sales and confidence data. These positive and improving numbers continue to point to an economic “soft landing,” or even a “no landing” scenario.

Invesco S&P SmallCap Momentum ETF (XSMO)
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This is important because it is a recession that is the biggest risk to stock prices. In our view, recession continues to be an unlikely scenario.

Why is the consumer so resilient and US economic growth such a tailwind? There are two main reasons: 1) Easing inflation, and 2) A relatively strong labor market. Although inflation is still above the Fed’s 2% target by most measures, there is confidence it is moving “sustainably” toward the target.

Our model portfolios bounced back in a big way in November. Growth funds and value were both big winners, with XSMO (a small cap blend ETF) up a whopping 12% for the month.

Recommended Action: Buy XSMO.

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