“Hot inflation is over.” Here’s what that means for investors, says this portfolio manager.

0

A firmer start is ahead for equities.

Investors appear to be recovering after Apple spoiled the mood on Monday via a report that it plans to slow down its recruitment.

If true, Apple AAPL,
-2.06%
is in good company, as a parent of Facebook Meta Platforms META,
+1.54%,
Google Alphabet,
-2.46%,
MicrosoftMSFT,
-0.96%,
TeslaTSLA,
+0.20%
and Amazon AMZN,
+0.18%
announced cuts or plans to slow hiring amid recession fears fueled by an aggressive Federal Reserve.

But a big concern may soon disappear, according to our call of the day Chairman and CEO of Stock Traders Daily and portfolio manager at Equity Logic, Thomas H. Kee Jr.

“There’s a very good chance that hot inflation data is now officially in the rearview mirror,” Kee told clients recently. “Obviously, we can never be sure, but with oil cratering and transient inflationary pressures easing, it’s a real possibility.”

While the market worried about inflation causing Fed hikes, “much higher rates are already priced into expectations, and everyone expected the FOMC to be more aggressive early on, then calm down afterwards.

Kee thinks a 75 basis point rise next week could also lead to a bigger move next time, or a 100 basis point rise, signaling “the end of the ‘fast start’.”

He has long been a believer in investing simplicity, alternating investments between cash and the highly liquid SPDR S&P 500 ETF SPY,
-0.83%.
He said that since 2000, switching to cash when his proprietary crash indicator signaled high risk, and then holding SPY at all other times, would mean beating the market by 530%.

Speaking to MarketWatch in May, Kee predicted volatility would make it a market to trade, but he now sees a market to hold. And a play on this “end of hot inflation” favors technology, with the Invesco QQQ Trust Series I QQQ QQQ,
-0.85%,
an ETF that tracks the Nasdaq-100 index, his favorite game here.

He said if markets rose with less rate fears, QQQ should continue to outperform, recovering even more than SPY, although that exchange-traded fund could still work as well. Down about 27% since the start of the year, the ETF is up 3% on the month, compared to a drop of 19% and a gain of 1.2%, respectively for SPY.

Kee also threw in some stock recommendations. The first is Apple AAPL,
-2.06%,
which he considers “a good stock that is beaten” and which he holds in the portfolio from $135 per share.

The second is Credit Suisse CS,
+1.90%

CSGN,
+1.12%,
which he considers a “speculative value play,” noting that it is trading near 31% of its tangible book value of $19 per share, down from about 61% historically. “The stock is battered due to a series of bad events and they have cleaned up their act. This stock is expected to double over the next 12 months,” he said.

Kee said his proprietary Evitar Corte model, which uses FOMC monetary policy to define market crash risk, signals no market crash until next year. “No new highs though. There is no fresh money to reach new heights. But [a] good rebound = maybe -5% YTD or more. This means a return of around 15%,” he said.

And: Rallies to 4,000-4,100 should be viewed as an opportunity to de-risk, says BTIG strategist

The buzz

Johnson & Johnson JNJ,
-2.24%
posted a better-than-expected profit, but cut its outlook, and Hasbro HAS,
+0.27%
is down after a shortfall. Halliburton HAL,
+3.55%
the stock is up as a “nearly exhausted” North American market boosted earnings. IBM shares IBM,
-1.28%
are down, after the technology group announced an upbeat second quarter, but executives warned of a sharp decline in the dollar.

After the close, investors will be eager to see if Netflix NFLX,
+0.96%
reversed an exodus of streamers.

General Motors GM,
-0.76%
was downgraded by Deutsche Bank, which sees traditional automakers struggling to regain investor interest.

NCR NCR,
+1.50%
is booming on a report that the consumer transaction software and services company was in talks for a takeover by private equity firm Veritas Capital.

Bank of America’s monthly survey of global fund managers indicates that pessimism among managers has never been higher.

Building permits and housing starts both fell in June. The data showed China’s holdings of US Treasuries fell below $1 trillion, the first time since 2010.

The European Union’s budget commissioner said the bloc does not expect a restart this week of the crucial Nord Stream pipeline that sends gas from Russia to Europe. Gas prices in Europe are soaring this morning.

A heat wave in Europe sends temperatures soaring in the UK for a second day as more than 1,000 people die and thousands of hectares of land burn in Spain and Portugal. This Twitter post shows a train temporarily stopped with flames on either side, in northern Spain on Monday.

The steps

ES00 Equity Futures,
+0.95%

YM00,
+0.74%

NQ00,
+1.00%
are trending higher, while bond yields TMUBMUSD10Y,
2.993%

TMUBMUSD02Y,
3.183%
thumb up and oil CL.1,
-2.31%
prices go down. The DXY dollar,
-0.69%
is falling and bitcoin BTCUSD,
+2.87%
hovers at just under $22,076.

Table

As the Fed embarks on an aggressive hiking path, long-term US Treasury bonds and the TLT iShares 20+ Year US Treasury Bond ETF (TLT),
-1.04%
are showing signs of a potential long-term trend reversal, says Larry Tentarelli, editor and publisher of the Blue Chip Daily Trend Report.

The 2/10-year yield curve has inverted to its lowest level since December 2000, which means that the bond market is starting to price in an economic slowdown. “Historically, in a slowing economy, long-term bond yields tend to fall, which should bode well for long-term Treasuries and (TLTs),” he said.

Daily Blue Chip


Tentarelli notes that the TLT recently recovered its 50-day moving average and, on a weekly trend, made a bullish weekly MACD crossover, a sign of improving trend momentum. He advises watching the TLT to stay above 108-110 on any pullback.

Longer-term trend reversals can take a while to develop as markets move from a downtrend to an uptrend, but the upside potential from here is favourable. Read the full post here.

Stock tickers

Here are the most searched tickers on MarketWatch as of 6 a.m. EST:

Teleprinter Security Name

EMG,
+3.53%

GameStop

TSLA,
+0.20%

You’re here

CMA,
+7.61%

AMC Entertainment

XELA,
+34.33%

Exela Technologies

AAPL,
-2.06%

Apple

NIO,
+0.58%

NIO

AMZN,
+0.18%

Amazon

NVDA,
+2.15%

Nvidia

BABA,
+0.68%

Ali Baba

IBM,
-1.28%

IBM

Random plays

The COVID-19 pandemic has turned this Thai city’s famous monkeys into aggressive thieves.

Marriage spoiler? Huge waves in Hawaii overwhelm this couple’s big day.

Need to Know starts early and updates until the opening bell, but sign up here to get it delivered to your inbox once. The email version will be sent around 7:30 a.m. EST.

Want more for the day ahead? Sign up for Barron’s Daily, an early morning investor briefing featuring exclusive commentary from Barron’s and MarketWatch editors.

Share.

About Author

Comments are closed.