Don’t Fight the Fed - a Good Stepping off Point
Summary:
· The Federal Reserve continues to tighten monetary conditions by raising the Federal Funds Rate,
· The Federal Reserve continues to remove liquidity from the system, and
· The recent increase in stock prices is a rally within an overall bear trend in my opinion.
The following chart (www.stockcharts.com) illustrates the point, the S&P 500 Index is in a bear trend and rallies in 2022 have eventually failed. Don’t fight the Fed, given that the Fed continues to raise rates and there are recession drumbeats in the distance we expect that this rally will likely fail and in hindsight be an opportunity for investors to reduce risk.
When looking at the S&P 500 Index over three years we can see that the index revisited 2020 levels a few weeks ago, some could say that the index looks like it has a chance to lose all of 2021’s gains and possibly head towards losing all or part of 2020’s gains. In my opinion that is likely if there is a recession in 2023. The following chart (www.stockcharts.com) illustrates my point.
For investors who are concerned about capital preservation they can consider reviewing their exposure stocks at this point. In my opinion caution is warranted.
LPL 1-05349846
DEFINITIONS
S&P 500 Index - The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of predecessor index, the S&P 90. The index is a capitalization weighted index of the 500 large companies listed on various stock exchanges (such as the NYSE or NASDAQ). The S&P 500 was developed and continues to be maintained by S&P Dow Jones Indices, a joint venture majority-owned by S&P Global. The S&P 500 differs from the Dow Jones Industrial Average and the NASDAQ Composite index, because of its diverse constituency and weighting methodology. It is one of the most followed equity indices, and many consider it one of the best representations of the U.S. stock market.
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