Stocks ended last week higher but ended the day lower on Friday as new concerns caused investors some anxiety. Yes, the Federal Reserve skipped on a rate increase, but it made it clear that investors should not expect a halt or a decline in rates anytime soon. A reversal in the S&P 500 to its trendline should not be unexpected.

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Chairman Jay Powell made it clear that he and a majority of the FOMC members expect rates to continue to rise in the months ahead. There is one Fed meeting in July, then nothing in August. So, the next one would be at the end of September, which takes us into the Fall.

On the other hand, we heard from Tommy Lee – Fundstrat’s Head of Research – who has an opinion about where the market is going. He is much more bullish, saying that ‘the inflation war will end when the ‘collective public believes’ it over, and in his mind, that is sometime in 2023.

While I agree that it will be over when ‘we’ believe it to be over, I’m not sure that many believe that it is anywhere near the end. I mean – have you been to the grocery store lately?  Have you gone out to dinner? Have you bought a plane ticket? Have you paid an electricity bill? Have you tried to do any renovation work? 

In fact, has anything that affects your daily life gone down in price? Hardly.

In any event, the recession that we all have been bracing for remains elusive even as the Fed has raised rates by 500 bps. Last week, the rally really started to broaden out, too. We saw strength in Industrials, Financials, Basic Materials, Utilities and Healthcare – and that suggests that investors and the markets think we are avoiding a deep, long recession.

But it is also the end of the quarter. We have to consider the idea that many asset managers need to rebalance their portfolios. They will trim the highflyers (think Tech) and reallocate that money into those underperforming sectors that we have been talking about and that they don’t have enough of.

Bottom line: The market has performed exceedingly well but is a bit stretched, so get ready for a pullback. That is not a threat. It’s just common sense. The S&P is 7% above the short-term trendline and 12% above the long-term trendline.

Stick to your plan. Build out the defensive part of your portfolio. Do not keep chasing tech names that are way overdone.

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