Portfolio Performance, Elections, Fed Moves, and Patience

November 3, 2024 - Update

Macro: Money Supply, Financial Conditions, and Market Impact

The availability of credit for businesses is crucial; without it, economic slowdowns or recessions can occur. The stock market often senses these downturns in advance, sometimes leading to a crash. That’s why I closely monitor the money supply in the economy, represented by M2, which the Federal Reserve manages.

Money Supply Trends

The chart below shows M2 money supply changes over the last two years. It highlights the large Fed injections following COVID and the subsequent reduction that began in mid-2021. This downward trend stopped in April 2024, and since then, money supply has grown at a steady rate.

Financial Conditions

I also track financial conditions via the Chicago Fed. Since late 2022—around six months after the Fed’s shift in M2 policy—conditions have been steadily improving. In addition, the number of banks tightening credit (reducing business loans) has been falling over recent months, indicating easing restrictions.

Together, these indicators support a positive outlook for stocks, assuming monetary policy stays on its current path.

Economic Data and Labor Market

Despite a 2.8% GDP growth rate in Q3, recent data shows a weakening labor market. The latest "Nonfarm Payrolls" report missed expectations, signaling a softening job market. This trend matters because it suggests the Fed may continue cutting interest rates at its November 7 meeting.

Ideally, I’d like to see steady economic data, as a sharp drop could signal an imminent recession—a negative sign for stocks. The GDP Nowcast for Q4 stands at 2.1% but has been slipping, which I’m watching closely.

My base case is that the economy remains resilient enough to avoid a hard landing, allowing the Fed to reduce rates gradually. If this scenario holds, it should provide a supportive environment for stocks heading into 2025.

Upcoming Election Concerns

The upcoming elections add uncertainty. An unclear outcome could lead to a temporary market correction until resolved, potentially creating a buying opportunity if the overall economic backdrop remains favorable. Current prediction markets point to a tight race.

Takeaway

For now, patience is key. I plan to manage risk and wait until the election results are clear before committing more capital to the market.

Market Indexes

After seven consecutive positive weeks, the Nasdaq closed down 1.5% this week. Although key moving averages are still trending upward, the 21-day simple moving average on the daily chart has turned downward, signaling caution on new buys.

A similar trend is seen in the equal-weight S&P 500 (RSP), where the 21-day moving average is also pointing down. Additionally, over the past two weeks, market breadth has weakened across all sectors (fewer advancing stocks relative to decliners), which adds another layer of caution.

PORTFOLIOS

UNDERPRICED GROWTH Portfolio

I closed my position in HIMS with an 11% gain (134% annualized). I've also updated my stop-loss levels, leaving me with 9 open positions and a 57% cash reserve.

10X MOMENTUM PORTFOLIOS

RKBL continues to perform well, currently up 53%. I've updated my stop-loss levels here as well.

It’s now been 580 days since I started this portfolio, and I’m up 140% (74% annualized). My cash position stands at 27%.

10X SMALL CAP MOMENTUM PORTFOLIO

I’m looking to close this portfolio once I exit my position in CMPO. I’m about 10% away from the stop-loss level, with CMPO up 106%. We’ll see when the market kicks me out, but I still believe the company is undervalued. The next earnings report is scheduled for November 8—let’s see what happens.

2024 "7 PICKS" PORTFOLIO (Year to Date)

With only two months left in the year, here’s how my "7 Picks" portfolio for 2024 is doing:

APP has quadrupled, ZETA has tripled, and NVDA has more than doubled YTD. Despite being down on the other four stocks, the portfolio is up 81.7% YTD—almost 4X the SP500's performance. Since this is a “buy and hold for 1 year” strategy, I have a solid cushion and am optimistic about the end-of-year performance.

"BEST OF ARKK" PORTFOLIO

As a test of my methodology, I selected 11 stocks from ARKK Innovation Fund, focusing on revenue growth, fundamentals, and valuations. After a little over two weeks, the portfolio is up by 1%, outperforming ARKK’s -1.5% for the same period. This is a “for fun” portfolio that I’ll review every three months, staying fully invested to benchmark it against ARKK. My original post here.

What is ARKK?

From Wikipedia: The ARK Innovation ETF (ARKK) is actively managed by ARK Investment Management, led by Cathie Wood. Launched in 2014, ARKK invests in companies positioned for disruptive innovation across sectors like AI, DNA sequencing, robotics, EVs, energy storage, fintech, 3D printing, and blockchain. The fund targets long-term growth with companies expected to double in value over five years.

That’s all for this week! Let’s see what unfolds with the upcoming elections and the Fed meeting.

For now, I’m holding off on new trades as the NASDAQ’s 21-day simple moving average is sloping downward, signaling caution.

-

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