"5,000 or Bust" is the perfect sentiment for today's commentary. That is because there is no way the S&P 500 gets to the current level without touching that important milestone, states Steve Reitmeister of Reitmeister Total Return.
The greater question is what happens after hitting 5,000? Plus, how will the Fed meeting on Wednesday affect the market? So, let's answer these two vital questions and more in this week's Reitmeister Total Return commentary. As they say the “third time is the charm”. That is certainly the case as stocks were thwarted the first couple of times they tried to break to new all-time highs above 4,800. Yet indeed on the recent third try finally broke above.
Since that January 19 breakout stocks have continued to move higher. Thus, the attraction of hitting 5,000 at this time is just too great. Kind of like the moth needing to touch the flame. It just has to do it. The question is what happens afterwards? I guess that just like 4,800 it becomes a point of resistance for a while for investors to digest recent gains. The key for the breakout above is the certainty of Fed rate cuts which would spark economic growth > earnings growth > and yes, share price growth.
As shared in recent commentaries, virtually no one is expecting a rate cut at the 1/31 Fed meeting. However, they will listen for any clue of how prepared the Fed is to cut in March, May, or June. Right now investors place nearly 50% odds on the first rate cut coming at the March 20 meeting. That increases to 100% odds for the May first meeting. The danger here is that investors may be too optimistic about the timing of rate cuts as they have stated they would rather cut too late...than too early allowing inflation to spark higher once again.
Helping to embolden investors was the PCE Prices reading last Thursday. As most of you know, this is the Fed’s preferred inflation gauge versus other readings like CPI. Gladly Core PCE is now down to 2% inflation. Indeed that is their target level and explains why stocks have continued to rally since this key report. Looking beyond the 1/31 Fed report investors should keep an eye on these key economic reports:
2/1 ISM Manufacturing: Weakness in some regional manufacturing reports like Empire State make this an important hurdle to clear.
2/2 Government Employment Situation: Even more important than the level of job ads and the unemployment rate will be signs of wage inflation. Hopefully, it is becoming less “sticky” than the past increasing the odds the Fed will cut rates as early as March.
2/5 ISM Services: Hoping the healthiest part of the economy stays on a growth path.
2/13 CPI & 2/16 PPI: Widely followed inflation reports that need to keep ebbing lower. Just remember Core PCE is the Fed’s favored inflation reading.
Trading Plan & Top Picks
The long-term trajectory is bullish. Thus, when I say that stocks likely find resistance at 5,000 doesn’t mean you should sell out of stocks at that level. Rather, just a good time to review your positions and take profits on overinflated ones that likely will see larger rounds of profit taking at that time. Subsequently, it’s a great time to load up on the best picks for the next leg higher. Given that January was a bit too mega-cap tech-heavy...then still believe that the path forward is better paved with small and mid-cap growth stocks that have a bit more of a value bias. That is precisely what I got dialed up in the Reitmeister Total Return portfolio that has outperformed by a wide margin ever since this latest bull run began in November 2023.
Learn More About Reitmeister Total Return here…
