Choppy Days Lie Ahead So Why Fight The Fed?

  • Roller coaster market last week created more uncertainty (see AMD results).
  • Fed speak dominates choppy trading pattern.
  • Focus on sectors away from MACRO: Healthcare and Energy,

We are in a bear market with choppy days over the next few months. Two brief rallies with higher lows on the S&P give us hope. I wish I was 100% cash then I could buy more short-dated treasuries and make 4+% on my money. But my cash position is only about 20% so I need to trade the market while lowering my risk. Everything written and spoken out there seems to be about the Fed fighting inflation. So that means rates go up, economic growth wanes, and earnings go down in a “risk off” market. But will inflation go down enough for a Fed looking in the rearview mirror? Big earnings weeks are coming up: PEP, JPM, TSM, UNH etc.

Note on the charts below that after Friday’s action and weakness in tech stocks on Friday the Nasdaq is at 2022 lows.

SPY at 362.79 (S&P at 3639.66) on 2 yr chart.

(Click on image to enlarge)

(Click on image to enlarge)

Here is one “bullish” narrative as a 2022 summary model from reading all the opinions from various analysts and strategists:

  • Technicals hold S&P 3600 level with upside limited to 4000 level by year-end.
  • Fed raises rates 75 bps and 50 bps in December then pauses.
  • Top sectors remain healthcare and energy.
  • Soft landing. means no recession, and no further geopolitical risk.
  • Wildcards and tail risk: Ukraine and more earnings misses?

We have focused on large cap growth, healthcare, and energy stocks. There can be an upside from speculative small cap growth with the XBI as a momentum indicator. Here are some other key MACRO indicators to track for the choppy months ahead:10 Year and Two Year Yield, USD, and Crude.

More By This Author:

Large Cap Biopharmaceuticals: Core Holdings For Your Portfolio
Can Healthcare Stocks Continue To Outperform?
Healthcare Sector Still Looks Good But Lacks Momentum
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