The best way to describe the current state of affairs in the markets is cautious optimism.
Now that the S&P 500 is trending higher, I am starting to add to positions in one of my trading services…but I remain focused on interest rate sensitive sectors and larger stocks.
I don’t think equities are a screaming buy just yet.
We have witnessed a strong 2-month rally in global equities, so things are getting a bit stretched in the short term.
The big question on everyone’s lips is whether stocks will rally as rates fall.
That will be decided by the path of GDP and employment.
If the US economy tips over into recession then bonds will rally (interest rates will fall), and stocks will fall. Alternatively, a soft landing can see a rally in bonds and equities.
That’s why I have been focused on the low hanging fruit by gaining exposure to bonds and sectors that will benefit as rates fall.
I’d rather gain bond exposure at this point because I think the highest probability event from here is that rates continue to drop.
Whether stocks rally or fall, making money on the bond rally will either add to stock returns or hedge the losses.
The S&P 500 saw some stiff selling pressure on Wednesday after tapping the all-time high hit in January last year.
As a technical analyst I am always on the lookout for double tops because they have been powerful indicators in the past.
A double top is when a market retests a major high but then fails to carry on and turns back down rapidly. It is often what happens at the end of a bull market.
I show you a double top that occurred in the S&P 500 in 2007 in the video above.
It is still too early to call a double top in the S&P 500, but it is something to be aware of as we move forward.
In today’s Closing Bell video I show you the situation in bonds and stocks and also review some of the trade ideas I have given you throughout the year.
I hope you have a wonderful Christmas and New Year with your loved ones and look forward to helping you navigate the markets in 2024.
If you have enjoyed my work during 2023 then please give me a ‘like’ on the video in YouTube.
Regards,
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Murray Dawes,
Editor, Retirement Trader and Fat Tail Microcaps
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