Deciphering Market Indecision: Inflation, Technology, and Stocks
Update September 4th 2023
The market was closed today so we’ll have a shorter trading week.
The equal weight Sp500 ($RSP) is still trading within a range after the failed breakout in August:
We keep experiencing an indecisive market bouncing up and down based on recession and inflation fears.
The biggest concern is about a US economy that becomes too hot while inflation has not approached the 2% target from the FED. If that happens, then the FED would keep interest rates “higher for longer” or even higher from current levels (more hikes) which would send stocks lower.
This is the difficult environment we are in. Here is my take in a nutshell:
I believe we are living in transformational times where technologies like AI, robotics, Solar, Electric vehicles, software, etc. will bring productivity and wealth;
We are navigating uncharted waters as we are coming out from a pandemic shock that was managed through an unprecedented amount of fiscal and monetary stimulus;
We need time to get more clarity and the market is concerned about inflation and restrictive monetary policy (=less money available for lending, mortgages, etc…)
As soon as we get more clarity about a controlled inflationary environment and the consequent friendly monetary policy, then we’ll see a market that will be more predictable and for sure less indecisive;
One way to look at inflation expectations is following the 10-year treasury bond. Last week, it started to trend lower, yet is too early to say that it is a newly established trend lower:
Oil prices have been trending higher lately which brings concerns:
So what? Well, there is a possibility that the market will keep chopping until more clarity about where the interest rates are going.
PORTFOLIOS
LARGE-CAP MOMENTUM POT
I will buy 20 shares of PDD 0.00%↑ if it goes above $105
Pinduoduo is ticking many boxes:
improving profitability
undervalued
growing above 30% per year
breaking out on strong volume
MACD indicator getting into positive territory
My first Stop Loss will be placed at 78.9 (-25%)
SMALL CAP MOMENTUM POT
I will buy 100 shares of ML 0.00%↑ if it touches $20 as the stock is extended right now:
If triggered, my first Stop Loss will be placed at $15.9.
Again, here we have a business:
growing above 45% per year
Turning profitable in 2024
breaking above a clear downtrend
showing high demand (volume)
starting to outperform the SP500
That's all for this week. Wishing you all the best!
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Important: this is not investment advice. Consult a licensed financial advisor before making any investment decision.