VRA Investment Letter: Fed Shocker. Dow Jones Hits ATH. We're in the Sweet Spot. Fed Telegraphing Begins.
/Good Friday Morning all.
Another ATH in the Dow and more leading sectors and stocks than we can count. The rest of the broad markets will soon follow right along. Then it will be “new highs beget new highs”. We’re watching a textbook, early bull market in action.
We’re just 1.6% from ATH in S&P 500, 8.5% in Nasdaq and a big 23% in Russell 2000.
This train has left the station. Yes, we’re hitting extreme overbought on steroids on several broad market indexes and sectors. Yes, this is when discipline needs to be observed. But folks, this is a burgeoning melt-up of a bull market. The Fed insured that Wednesday. Parabolic moves like this can go much further than would ordinarily be the case. Little is more bullish than a stock/index that hits ATH’s and then just keeps going.
VRA Quick Hitters this AM.
1) While we’ve been saying over the last month that “Fed front-running” was clearly underway and that it would cause rates to plummet, and while we wrote Wednesday morning that it was time for the Fed and J Powell to start telegraphing their 2024 rate cuts to the markers, even we were surprised by the overwhelming dovishness the Fed exhibited at the FOMC. It was an absolute stunner. And its causing a stampede into stocks and bonds. That sound you here is $7 trillion exiting money market funds for the stock market.
Our advice to the Fed, From Wednesday’s Letter:
2) Fed front-running is picking up speed.
Just two weeks ago, at a speech to a think tank, J Powell said these exact words; “it’s not time to talk about rate cuts”. JP, what changed in less than 2 weeks?
Once Powell and team announced that they expected 3 rate cuts next year, followed by possibly the most dovish Fed meeting imaginable, the race to buy bonds and stocks was “on”.
BTW, the markets are expecting the first rate cut in March (74% chance), with 4–6 cuts in total next year, depending who you listen to. Our forecast is unchanged; we expect 4 rate cuts in 2024.
The last thing the Fed wanted to do is go right from rate hikes into rate cuts, without first telegraphing those cuts at least 3–4 months out. It would be enough to cost Powell his job. That’s how bad he’s already been.
Without question, the worst Fed chair of my time. But I’ll give him credit on this; he got yesterday right.
The 10-year is now below 4%, our year end forecast from September.
3) Equity markets ripped higher following the Fed statement, with the Dow Jones closing at ATH. The rest of the broad markets will soon follow right along. Then it will be “new highs beget new highs”.
This train has left the station. It was an especially good day for our positions in the semis, housing, small caps, precious metals and miners.
Also of note, the percent of S&P 500 above the 50 dma now sits at 90% (93–95% is cause for concern). However, the percent of S&P 500 above the 200 dma is just 75%…plenty of room to run here.
And the internals Wednesday confirmed the blast higher. NYSE up-volume came in at 89.46% (just missing another breadth-thrust buy signal) with a big 8:1 NYSE advance/decline. Garlic strong.
4) Small Caps Continue to Lead large Caps
We continue to pound the table on small caps. We’ve been hyper-focused on this relative strength chart of small caps to large caps (S&P 500) over the last month (chart below), as we’ve pounded the table on this group. We own several small caps in VRA Portfolio. Small caps are having their strongest move higher since 2020. Big move higher into year end and 2024 remains our forecast. 40% +. When the small caps run, they really run.
5) We also continue to pound the table on the miners. Man oh man, could they ever be set to rock and roll.
From Wednesday’s VRA Letter; chart perfection
Keep buying the miners, and physical gold and silver. Gold sits at $2053/oz with silver $$24.44/oz
6) Bloomberg TV; Conspiracy Theory from This Mornings Show
Is Bloomberg getting red-pilled, too?
Republicans Should Choose Their Election Messaging Carefully
7) Finally for this morning, over the last several months we’ve been writing about a “Great Reset” of a different kind (as the Fed completely resets interest rate cycles) and our “3 Major Inflection Points” of lower USD, disinflation and plummeting rates. This combination will continue to propel stocks higher. We’ll have shake-outs…we always do…but we also plan to keep buying dips, just as we’ve done from our recommendation to aggressively buy stocks from the 10/13/22 bear market bottom. This is “that” bull market. One that we believe will rival the 1995–2000 melt-up.
Until next time, thanks again for reading…
Kip
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