VRA Letter: The Fed is Done. Significant Inflection Points Have Arrived. A Bullish "Great Reset” with Seismic Shifts.
/Good Thursday morning. All eyes were on the Fed yesterday, as they delivered their latest interest rate decision. The Fed left the fed funds rate unchanged at 5.50% after its two-day meeting.
The Fed is Done
As Tyler (our resident Fed-watcher) covered on his VRA Investing Podcast yesterday, it looks increasingly certain that the Fed’s rate hiking cycle is over. In Powell’s presser, following the Fed’s statement that left rates unchanged at 5.5%, Powell stressed that the Fed will “proceed carefully,” turning heads when he stated for the first time that monetary policy is currently at a “restrictive” level.
As Powell spoke, Tyler and I both noticed the same thing; Powell seemed/acted genuinely confused. His Q&A was noticeably nervous, IMO. Fed “confusion” sent the bond/stock markets a signal that a significant “policy shift” has arrived. And that’s all that stocks needed to surge higher, led by both the semis/tech and housing…our most important leading indicators…both of which were up 3% on the day.
At the same time as Powell was speaking, the Atlanta Fed released their Q4 GDPNow estimate, which shows Q4 growth of just 1.2%. This combination has bond yields plummeting lower, with the 10 year yield down to 4.63% this AM.
If you remember we saw big “outside days” last week in multiple bonds and bond derivatives, they appear to have telegraphed exactly what we are seeing today. Technical analysis matters.
Significant Inflection Points Have Arrived — A Different Kind of Great Reset.
From the late July peak, as we warned about bearish seasonality, we began alerting to the fact that Q4 would feature stars aligning for significant primary and counter-trend moves to occur. Demand destruction is taking place, with a 5.5% Fed funds rate and better than 8% mortgages, as the Fed’s rate hike lag effects kick in.
We expected a reversion to the mean, with rates collapsing into year and 2024…as the US economy slows and disinflation continues to build…and as we learn that the Fed has (once again) overplayed their hand once again, another J Powell policy error. We expect rate cuts in mid-2024. Ed Hyman expects 6 rate cuts next year.
The combination of everything laid out above will be highly bullish for US stocks and precious metals/miners, as we’ll essentially have a “Great Reset” of a different kind, as the markets prepare for an extended period of rate cuts. More financial engineering from the Fed (more QE). A perfect set-up for the roaring 2020’s.
Market Timing Inflection Points: If we are reaching significant inflection points that we see on our charts and the VRA Investing System, it will also mean that a significant move higher in stocks is now underway.
Our Inflection Points Have Arrived. Seismic Shifts Are Developing.
- Inflation has peaked
- The Fed’s hiking cycle is over
- Rates have peaked
- Corporate earnings will continue to grow above trend
- The consumer should remain strong
- Seasonality is highly bullish
- Permabears are out in force (clickbait list-builders)
Over the last year, as most mainstream economists predicted a recession, we expected strong economic growth, led by the consumer. Blistering third-quarter GDP growth of 4.9% confirmed our base case. The finances of both the US consumer & US companies have rarely been stronger. The fact that our views remain deeply contrarian only makes us more confident in them.
Global Central Banks on a Gold-buying Spree
In addition to central banks record levels of gold buying over the last two years, over the last 30 years the biggest moves higher in gold/silver/miners
have taken place when the Fed pauses rate cuts and then starts cutting. This is one of the best set-ups for precious metals in my career.
VRA Bottom Line
- Each major US equity index is bouncing off of extreme oversold levels on the VRA Investing System. We believe this is the best buying opportunity since the 10/13/22 bear market lows.
- The S&P 500 dropped 9.8% from the late July peak. Since 1980, the avg year sees a peak to trough correction of 14.3%.
- Since 1952, the second year of a bull mkt has been higher 100% of the time, with avg gains in the S&P 500 of 13.8%.
- November is the best month of the year for the S&P 500, Russell 2000, and the Semi’s, and the beginning of the best 3-month stretch for Technology. In November, the semis are up 7% on average. The semis lead the market in both directions. The semis are our single best market tell.
- We have entered the strongest period of the year, going back to 1952.
We recommend that investors use pauses/corrections…like the one we just saw…to add to or initiate positions in semis/tech, housing, energy, precious metals/miners & bitcoin.
Until next time, thanks again for reading…
Kip
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