After getting as low 5,119 last week, the S&P 500 (SPY) has bounced back with authority. That includes Tuesday’s rally pushing the index to a close at 5,434.

Is the worst behind us?

And how should investors navigate the stock market in the weeks ahead?

We will answer all that and more in this week’s edition of the Reitmeister Total Return.

Market Commentary

We will start today with a technical conversation of the market. Then we will dig into the fundamentals:

Moving Averages: 50 Day (yellow) @ 5,451 > 100 Day (orange) @ 5,316 > 200 Day (red) @ 5,044

As you can see that the market has reclaimed the high ground above the 100 day moving average in convincing fashion. There was a push late in the session Tuesday towards the 50 day moving average that fell short.

Breaking out above...or tumbling lower once again likely has a lot to do with the roll call of economic events between now and the September 18th Fed meeting where they undoubtedly will start lowering rates.

8/13 PPI: This is the lesser followed of the 3 big inflation reports with CPI (8/14) and PCE (8/30) typically being bigger market movers. However, PPI results were so much better than expected on Tuesday that investors couldn’t help hitting the buy button on stocks.

Core PPI dropped from 3% to 2.4% in the year over year reading. Plus the monthly reading was a modest 0.1% pointing to inflation cooling down considerably. With PPI being the leading indicator of CPI, then this bodes well for future inflation readings.

8/14 CPI: Investors are currently expecting this report to be unchanged month over month at 3.0% for CPI and 3.3% for Core CPI. These estimates were calculated before the impressive PPI showing and thus it is likely to come in a notch lower, which no doubt would be cheered with lower bond rates and stock gains.

8/15 Weekly Jobless Claims (and every Thursday thereafter): Yes, claims have risen from near record lows earlier this year. Yet anything under 300,000 weekly claims typically equates to net job growth. So last week’s 233K reading is not that scary in the grand scheme of things. And any near term increase will be rectified in coming months as the Fed starts lowering rates which should bolster the economy including the employment picture.

8/21 Fed Minutes: These minutes can often hold clues for the likely outcome at the next meeting. Right now, investors are 100% certain of rate cuts coming on September 18th. The only debate is whether it will be 25 or 50 basis points where the probabilities are split. I am in the 50 point camp as the Fed officials likely want to calm any nerves that sprang up from the early August stock market correction.

8/30 PCE: As noted above, this is one of the more followed inflation reports. Actually it should be the most followed because Fed officials have time and again made clear that Core PCE is their favorite inflation gauge (yes, more so than CPI which investors follow closely). That came in at 2.6% last month down significantly from 4.2% a year ago and well on its way back towards the Fed target of 2.0%.

9/3 ISM Manufacturing: The weak reading last month had some investors talking more about chance of recession. The ISM Services report that followed quickly put that conversation to rest. Plain and simple, manufacturing has been the weak spot of the economy for about 2 years and yet still GDP has been in the plus column. So that says to me results here are not as important as it has been historically and should not be a market moving event.

9/5 ISM Services: As noted above, the solid results from last month quickly put the recession conversation to bed. Plain and simple, as long as people in the US have jobs and are getting a paycheck...they will spend it. That is as certain as death and taxes. So, with the employment picture still quite healthy so too should be the reading for ISM Services.

9/6 Government Employment Situation: Just like weekly Jobless Claims, this has been softening in recent months. But that was all part of the game plan of the Fed in raising rates to lower demand and thus tame inflation once and for all. In fact, the Fed officials predicted that the unemployment rate would creep up to around 4.1%. We are a slight notch above that right now which is why confidence in rate cuts are so high. Meaning any problem here will be soon solved with lower rates that will bolster economic growth, and yes, the jobs market.

9/18 Fed Meeting: This is when rate cuts are set to begin. Put me down for a 50 basis point cut prediction. Not that 25 would be a problem. I just think they will start on a strong note. Then probably not cut the next time. And then serve up another 50 basis points etc. More clarity on their plans will be shared at this meeting.

Putting it altogether, we are in a fairly good situation. Any weak economic results will not spark fears of recession as much as it will bolster the Fed to move faster on rate cuts. And that will be cheered with a “Don’t Fight the Fed” rally.

And any strong economic reports that arrive will be fine as long as inflation continues to be tamed.

The only negative outcome on the fundamental front would be super strong economic data combined with rising inflation. That would put rate cuts on hold with investors selling off as they recalibrate how much longer it will be til the Fed is on their side. I put low odds on this being the case.

In the grand scheme of things, I am bullish. My only serious cause for concern in the near term is the that the last 3 Presidential elections caused meaningful corrections around August/September. Then the market took off again once election results were in hand.

The switch from Biden to Harris on the Democratic ticket has increased uncertainty over the outcome of the election. Not to say that investors are cheering for Democrats or Republicans. They just don’t like uncertainty.

Next up is the Democratic National Convention...and then the first scheduled debate between Trump and Harris in early September. I think these events could cause the race to tighten further...increasing uncertainty...and increasing the likelihood of another pullback or correction the way.

This has me keeping some cash on the sidelines to buy future dips. Plus, I have a market timing trade in a 3X inverse ETF to make money on any market weakness (I am already up +13% on that trade since putting on the books in late July).

Net-net I am about 70% long the stock market. Meaning I continue to lean bullish. But just using a dose of caution for the next few months given the uncertainty that may arise from the election (as it has the past 3 election cycles).

For more specifics on my current portfolio, then read on below...

What To Do Next?

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Wishing you a world of investment success!

Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
CEO, StockNews.com and Editor, Reitmeister Total Return

SPY shares fell $0.46 (-0.08%) in after-hours trading Tuesday. Year-to-date, SPY has gained 14.76%, versus a % rise in the benchmark S&P 500 index during the same period.

Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.

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