Economic Indicators Upbeat Amid Fed's 50bps Cut: New Positions in Focus

September 22, 2024 - Update

A quick update from me this week.

We finally received the Fed's decision, and it was in the right direction: cutting rates by 50 basis points.

As we've discussed many times here, the question now is to understand whether the Fed has acted too late (meaning a recession will come anyway) or not (meaning we get a soft or no landing).

Last week's economic data—namely retail sales and new building permits—came in better than expected, suggesting no signs of economic weakness.

What is the GDP Nowcasting telling us today? It says +3% for Q3 2024 and 2.7% for Q4 2024.

What about credit conditions? Are banks tightening credit conditions? Since Q3 2023, the number of banks tightening has been on the decline:

Also, credit conditions keep improving as measured by the Chicago Fed.

Lastly, inflation sits at 2.59%, and the nowcast for September points towards 2.27%.

Overall, it's a good backdrop for stocks, net of seasonality (Sept-Oct tends to be a bad period for stocks) and valuations: overall, stocks are not cheap and can be considered slightly overvalued by historical levels.

SECTORS

Utilities, Consumer Discretionary, Real Estate, Industrials, and Communication Services are outperforming the S&P 500 in terms of relative strength over the last two months.

Industrials and Consumer Discretionary sectors are picking up as more evidence of economic strength materializes, alongside expectations of interest rates coming down over the next few months.

INDEXES

The Nasdaq closed up 1.5% for the week and remains in a clear uptrend.

Also, the Equal-weight S&P 500 (RSP) is in a clear uptrend:

PORTFOLIOS

Let’s start with my new 10X UNDERPRICED GROWTH Portfolio.

I started 5 new half-positions last week as shown below:

I invested 1/4 of my total capital and experienced a good first week. I updated my Stop Loss as shown above.

This week I’ll be adding 2 new half positions:

• 395 shares of LYFT 0.00%↑ if it touches USD 12.51. First Stop Loss at USD 9.27

• 9 shares of META 0.00%↑ if it touches USD 562. First Stop Loss at USD475

Here is a snapshot of key numbers for these 2 companies right now:

Both companies are experiencing year-over-year growth exceeding 15% and are expected to maintain this rate over the next two years. According to my analysis, both companies are underpriced.

If you missed it, here is a Summary of the UNDERPRICED GROWTH Investing Strategy:

The UNDERPRICED GROWTH Investing Strategy aims to build a portfolio of 10 fast-growing, undervalued companies that are expanding their assets, increasing profitability, and demonstrating consistent earnings growth. The key components of the strategy include:

• Growth Focus: Target companies with at least 10% year-over-year (YoY) growth, ideally projecting over 15% growth for the next two years.

• Valuation and Profitability: Invest in undervalued companies showing YoY asset growth and consistent improvements in profitability.

• Technical Analysis for Entry Points:

  • Base Formation: Buy stocks that have formed a base for at least four weeks.

  • Moving Averages: Ideal entry points are when stocks touch the 10-week or 40-week simple moving averages (SMA).

  • Breakouts: Consider entering on breakouts only if the risk-reward ratio is favorable; avoid chasing overextended stocks.

• Risk Management with Stop Losses:

  • Initial Stop Loss: Set wide stop losses between 15-25% to prevent being shaken out by normal market volatility.

  • Adjustment: Over time, aim for an average loss of 7-10% on exited positions by adjusting stop losses.

  • Tightening Stops: Tighten stop losses if a stock becomes too extended from key moving averages or if market conditions deteriorate.

• Position Sizing and Capital Allocation:

  • Initial Capital: Start with $100,000.

  • Investment Approach: Enter positions in thirds or halves to manage risk and take advantage of potential price improvements.

• Profit-Taking Strategies:

  • Parabolic Moves: Take partial profits if a stock experiences a sharp upward move.

  • Extended Stocks: Consider profit-taking if a stock is significantly above key moving averages.

• Monitoring Market Conditions:

  • Indices Watch: Keep an eye on the S&P 500 or NASDAQ for signs of a market downturn.

  • Adjusting Strategies: Cease new purchases and tighten stop losses if the 10-week SMA starts to decline.

• Portfolio Management:

  • Rebalancing: Rebalance the portfolio quarterly to ensure alignment with growth and valuation criteria.

  • Diversification: Maintain diversification across different sectors within the 10-position limit.

  • Weekly Reviews: Conduct weekly assessments to consider new buys, potential sells, or stop-loss adjustments.

• Quarterly Portfolio Review Checklist:

  • Portfolio-Level Assessment: Verify that all holdings still meet growth and valuation criteria; adjust for macroeconomic factors.

  • Position-Level Assessment: Evaluate each company's growth consistency, valuation status, technical position, and any fundamental changes.

10X MOMENTUM PORTFOLIOS

SMALL CAPS: CMPO had another good week and now is up 86%. I adjusted my Stop Loss.

MID-LARGE CAPS: I entered HRMY 0.00%↑ and RKLB 0.00%↑ last week:

Also, I updated my Stop Loss levels.

This week I am adding a new position to my momentum portfolio:

• I’m buying 65 shares of PRIM 0.00%↑ if it touches 59.13 USD. First Stop Loss level at 47.7USD

Primoris Services Corporation is a specialty contractor company, provides a range of specialty construction, fabrication, maintenance, replacement, and engineering services in the United States and Canada. The company operates through Utilities and Energy/Renewables segments. The Utilities segment offers installation and maintenance services for new and existing natural gas distribution systems, electric utility distribution and transmission systems, and communications systems. The Energy/Renewables segment provides a range of services, including engineering, procurement, and construction, as well as retrofits, highway and bridge construction, demolition, site work, soil stabilization, excavation, flood control, upgrades, repairs, outages, and maintenance services to renewable energy and energy storage, renewable fuels, petroleum, and petrochemical industries, as well as state departments of transportation.

PRIM is breaking out on volume following a consolidation period of about 4 months.

That’s all for the week!

-

Important: This is not investment advice. Consult a licensed financial advisor before making any investment decision.