However, when the market falls, very few brave investors will put money to work.

Additionally, the odds of getting a better price than what you’d receive currently – regardless of when you’re reading this – are actually quite low. In fact, going back to 1928, if you wait for a bear market (a drop of 20% or more), you only have a 1-in-5 chance of obtaining a better entry point than the current price – no matter where that price level is.

This is an amazing statistic, because most people naturally think a bear market will provide a better opportunity.

Sometimes it does. The brief bear market during the early days of the pandemic provided a decent time to buy. At the very bottom in March 2020, prices were at their lowest point since December 2016 – nearly eight years after the bull market had started.

But how many people were buying stocks as the market was plummeting and the economy was shut down? Almost no one had the guts to buy at that time.

The most recent bear market ended in October 2022. At the low, you could have gotten a better price in the S&P than at any time after December 2020.

However, even if you possessed the nonexistent skill of market timing and waited to buy at the 2022 bear market low, that was still higher than the peak before the COVID crash and was roughly three times higher than where the S&P was in 2010.

Furthermore, even investors with the best intentions of buying low and selling high have a very hard time buying when stocks are falling. It’s too emotionally difficult. Sure, some folks are buy-the-dippers, but I’m not talking about a dip. I’m talking about a real correction or bear market. That’s a scary time to buy, and most people won’t do it until they believe things have stabilized.

At that point, the market is usually in raging bull mode.

Again, think back to the pandemic or the global financial crisis. Do you know anyone who was buying stocks in 2009? At that time, the economy was still a disaster. We were nowhere close to a recovery. Yet stocks bottomed and started their move higher. I know people who still have the emotional scars from the crisis and the terrible bear market that followed. As a result, they’re still scared to invest in stocks and have missed one of the great bull markets of all time.

Waiting for a better time to buy that may never come – or being scared to answer the door when opportunity knocks – could mean tens or even hundreds of thousands of dollars of missed gains over time.

Invest at regular intervals regardless of what’s happening in the market – whether it’s a raging bull, growling bear, or anything in between. It may feel uncomfortable, but your future self will thank you for having discipline and not letting emotion get in the way of the most important element of investing success: the amount of time you are invested.

Remember, there’s an 80% chance you won’t get a better price in the future than what you see today.

The post The Problem With “Buy Low, Sell High” appeared first on Wealthy Retirement.

Now, he’s decided to tell the Fed himself.

Below, you’ll find Marc’s open letter to the members of the Federal Open Market Committee, in which he pleads with them to listen to reason and hold off on cutting rates.

Will they heed his warning? We’ll find out next Wednesday.

– James Ogletree, Managing Editor

To: Jerome Powell; John Williams; Thomas Barkin; Michael Barr; Raphael Bostic; Michelle Bowman; Lisa Cook; Mary Daly; Beth Hammack; Philip Jefferson; Adriana Kugler; Christopher Waller

From: Marc Lichtenfeld

Subject: Let Me Buy You a Drink

Dear Members of the Federal Open Market Committee,

Thank you for your service. You have a pressure-filled job with high stakes for millions of your fellow citizens.

Though folks are still feeling the sting of higher prices, inflation is now under control. While the most recent reading of 2.9% is not yet at your stated goal of 2%, it is below the national historical average of 3.3% going back to 1914.

It’s time to take a victory lap, head to the nearest tavern, and recount the raucous debates on interest rate policy that led to the recent sub-3% inflation reading. I tell you what… drinks are on me!

I’m hoping a boozy night might bring you some clarity (as boozy nights are known to do). You see, everyone expects you to cut interest rates when you meet next week. In fact, according to the federal funds futures market, there is a 100% chance that you will lower rates at the September meeting, including a 29% chance the cut will be by 50 basis points.

Even more astonishing is that the market believes there is an 88% chance of rates being at least a full percentage point lower by December.

This would be a huge mistake.

As you’re well aware, the Fed has a dual mandate to “promote maximum employment and stable prices.”

After several years of high inflation, prices are finally stable again. However, a decline in interest rates would boost demand for goods and services in an already solid economy, pushing prices higher. If rates do fall by a full percentage point by the end of the year, I suspect we’ll see inflation back above 4% by the end of 2025.

Furthermore, rate cuts – while likely to make mortgages a bit cheaper – would send already unaffordable housing prices even higher. The housing bubble would inflate to even more ridiculous levels, making it nearly impossible for first-time buyers to purchase a home and thereby pulling rents higher.

I assume the reason for the looming rate cuts is the data showing that employment growth is slowing.

But here’s the thing: We’re still adding jobs. Mind you, not as many as we did during the post-COVID rebound, but the U.S. added 142,000 jobs in August, and annual pay was up 4.8%.

Initial jobless claims are at roughly the same level as they were two years ago. The most recent reading of 227,000 new claims is up from this year’s low of 194,000 in January, but it is also close to the lowest point in the past three months.

In June 2023, the number was as high as 261,000.

There were 7.7 million job openings in July. While that’s down from 8.8 million a year ago, it’s still nearly four times the number of people filing new and continuing jobless claims, and it means there are 1.1 jobs for each of the 7.1 million unemployed people who say they’d like to work.

Hiring is no longer happening at a furious pace, but firings and layoffs aren’t increasing either.

With GDP growth at 3%, it’s hard to imagine the jobs picture swinging violently to the downside in the near future.

The data simply doesn’t support a rate cut.

Think of it this way: Historically, under an average U.S. economy, we see 3.2% GDP growth, 3.3% inflation, 5.7% unemployment, and a 5.9% yield on the 10-year Treasury.

Today, GDP is growing at 3.0%, inflation is at 2.9%, unemployment is at 4.2%, and the yield on the 10-year Treasury is below 3.7%. Factory orders were also up 5% in July, their greatest increase since July 2020.

Does any of that sound like data that requires hitting the panic button?

It’d be like calling the fire department because you burnt your toast.

The problem is that we have become a society where everyone expects participation trophies. No one is ever allowed to feel uncomfortable.

We have become so accustomed to abnormally low rates over the past several decades that we now fear that any increase will slam the brakes on the economy – even though that clearly hasn’t happened in the most recent bout of rate hikes.

The absence of high inflation is not a reason to cut rates. Interest rates should be lowered in order to ensure maximum employment, not to ward off recession fears. Given that there are more open jobs than jobless people, the labor picture is still robust, even if it’s slowing.

Unfortunately, history shows that when you’ve cut rates, you’ve cut them too much and left them too low for too long. That’s what was responsible for the nearly double-digit inflation we experienced over the past few years.

Even more unfortunately, you’re about to overdo it again. And if prices spike as a result, you’ll have to go back to raising rates to ward off inflation. This kind of ping-ponging rate policy will do terrible damage to the economy.

Business leaders need to have a rough idea of what the economic landscape will look like so they can plan and invest for the future. But if rates are gyrating up and down, they’ll hunker down and wait for an all-clear signal before deploying capital.

If you leave rates unchanged, inflation should continue to cool. Perhaps the employment picture would worsen – perhaps not. If it does, you always have room to lower rates in the future. But if you cut rates now when it’s not necessary, you’ll be pouring lighter fluid on the previous inflation inferno that has been reduced to a small grass fire.

No one wants to see 4% or higher inflation – especially you.

So what do you say we hold off on cutting rates until we see some actual troublesome data and head to the bar instead? What’re you drinking? Order anything you want – but domestic only. After all, we have to protect American jobs.

Cheers,

Marc

The post An Open Letter to the Federal Reserve appeared first on Wealthy Retirement.

When I saw this column he wrote in our sister e-letter, Liberty Through Wealth, last week, I knew I wanted to share it with Wealthy Retirement readers as well.

Keep reading below to find out why Matt is bullish on stocks for the remainder of 2024.

– James Ogletree, Managing Editor

As we move into September, it’s beginning to look like we could see a strong year-end run for stocks.

First, the economy looks very healthy at the moment.

Last week, I wrote about how a recession this year is increasingly unlikely. I pointed out that the economy continues to create jobs (albeit at a slower pace than earlier in the year), new claims for unemployment insurance continue to fall, American consumers continue to spend money, and inflation continues to moderate.

Best of all, I noted that corporate earnings are at an all-time high. And that looks like it will continue into next year.

Industry analysts predict the S&P 500 will report year-over-year earnings growth of 11.3% this year and a whopping 14.4% in 2025.

It’s relatively rare to see two consecutive years of double-digit earnings growth for this group of companies…

The only times it happened in the last 15 years were in 2010-2011 and 2017-2018.

And of course, the stock market is forward-looking – usually about six months into the future, give or take a few months. So investors will be incorporating this expected profit growth into share prices over the next few months.

Cuts Are Coming…

But there has been additional data and developments since my article last week… most of them very positive for stocks.

First, the Atlanta Federal Reserve’s GDP prediction model sees economic growth of 2% for the current quarter. That’s not stellar by historical measures, but it’s still very solid. In fact, it reinforces the “soft landing” scenario I’ve written about in the past – that the Fed has been able to cool the economy just enough to moderate inflation but not enough to start a recession.

Also, mortgage rates continue to fall. The average rate on new 30-year fixed-rate mortgages has declined from 7.9% last October to under 6.5% last week.

This is extremely important. Consider that the housing industry – which ranges from homebuilders, financial firms, and brokers all the way to retailers like Home Depot (NYSE: HD) and Lowe’s (NYSE: LOW) – accounts for almost a fifth of the economy, depending on how you measure it. And the industry has been depressed, due to higher rates triggered by the Fed’s monetary tightening over the past 2 1/2 years.

But perhaps best of all, the Fed is poised to begin cutting rates directly after the September 17-18 meeting of its committee. Chairman Jerome Powell confirmed this last Friday at the Fed’s annual central banking conference held in Jackson Hole, Wyoming. Fed watchers are calling his speech “unambiguously dovish,” which means he apparently sees the need for multiple interest rate cuts in coming months.

And indeed, futures markets are now pricing that in. Traders see a 70% likelihood that the Fed’s target rate will be at least one percentage point lower by the end of the year…

Finally, I’ll add one last reason the market is set up for a strong finish to the year: historical patterns.

According to the Stock Trader’s Almanac, fourth quarter market gains have been the largest and most consistent over the years. Gains for the S&P 500 have averaged 4.2% during the fourth quarter since 1949 – much better than the first quarter (2.1%), the second quarter (1.8%), and the third quarter (0.8%).

Why has the fourth quarter been so strong over the years? The Almanac cites the approaching holiday season, which creates positive market psychology. In addition, investing professionals drive the market higher as they make portfolio adjustments to boost their year-end performance numbers.

Yes, there are also risks that can’t be papered over. We have an election looming, in which both sides will likely cry foul if they lose. That could create societal upheaval and unhappiness… and perhaps greater market volatility.

And geopolitical tensions – in Ukraine, the Middle East, and the South China Sea – are growing and threaten to draw the U.S. in.

There are always risks, and smart investors account for them. But if I have to decide whether to be in the market or out of it right now, consider me all in.

The post Are Stocks Poised for a Rally to End 2024? appeared first on Wealthy Retirement.

Each quarter, the Federal Reserve releases a Summary of Economic Projections (SEP), in which the central bank’s top decision makers reveal their expectations for the unemployment rate, GDP and inflation.

But one section of the SEP tends to draw more attention than any other: the dot plot.

This is a diagram that shows where the Fed’s presidents and governors – including Fed Chairman Jerome Powell – believe interest rates are headed in the coming years.

Below, you’ll see a model of the Fed’s most recent dot plot, which was released last Wednesday. The blue dots in each column represent the federal funds rate projections from the Fed’s seven governors and the presidents of its 12 individual banks.

But we’ve added a fun twist for you…

To keep the Fed honest, we’ve added three more dots in each column to represent the expectations of three of our own Oxford Club experts: Chief Income Strategist Marc Lichtenfeld, Director of Trading Anthony Summers and Senior Markets Expert Matt Benjamin.

As you can see, our experts aren’t as optimistic as the Fed about future rate cuts.

Now, predicting where interest rates will land several years in advance is a fool’s errand. As we always say, we’re not in the business of market timing. But interest rates can have a significant impact on both the markets and the economy, so looking at the historical data and thinking ahead can be incredibly useful (and profitable!).

Marc, Anthony and Matt went into more detail on the thought process behind their predictions below…

Marc Lichtenfeld

Chief Income Strategist

I don’t believe the Fed has garnered this much attention since CNBC used to try to guess the direction of interest rates by how full former Fed Chairman Alan Greenspan’s briefcase looked.

In the Annual Forecast Issue of The Oxford Income Letter in January, I went against the grain and said interest rates wouldn’t drop by much – if at all – in 2024 due to the lack of a recession and the potential for inflation to continue burning too brightly.

So far, that’s been the case. At the beginning of the year, the consensus was that there would be six rate cuts in 2024. Today, according to both the Fed’s dot plot and the federal funds futures market, that number is down to three.

But I don’t believe there will be any.

Inflation, while down significantly, is still not close enough to the Fed’s 2% target. February’s consumer price index reading was 3.2%. That’s not terrible, but it’s still far from the Fed’s goal.

I’ve said many times before that I don’t believe Powell wants to go down in history as the Fed chair who allowed inflation to reignite under his watch.

This year is also an election year. I don’t believe Powell wants to do anything that could be seen as politically motivated. A rate cut at this point would likely draw the ire of Donald Trump, who might accuse Powell of trying to slant the election in President Biden’s favor.

Lastly, there are currently no signs of a recession.

We are, however, approaching the first year of the presidential cycle, which is typically when recessions occur. There have been 10 recessions since 1948 (not including the COVID-19 recession, which was a black swan event). Of those 10, seven occurred during the first year of the presidential cycle.

The reason for this trend is the first year of a president’s term is the best year for him to make tough decisions, because he has three more years to win back favor with the electorate.

So I wouldn’t be surprised to see a slowdown in 2025, which could prompt the Fed to lower rates to around 4.75%-5%.

Anthony Summers

Director of Trading

I think there’s a slim chance that the Fed cuts rates this year.

There are two main data points that strongly undermine the case for lower rates. The first and foremost is sticky inflation.

Over the past two years, the Fed has made great progress in taming inflation. From its June 2022 high of 9.1%, it’s down roughly two-thirds to 3.2%.

That’s still too high, though – about 60% higher than the Fed’s long-term target of 2%.

If inflation remains sticky, the Fed will have no reason to lower rates. In fact, that would strengthen the case for higher rates, especially given the economy’s current strength.

That brings me to the second data point: economic growth.

Last year, many analysts – myself included – were skeptical of the Fed’s “soft landing” talk. The economic data was far too mixed to suggest things were going smoothly.

However, our economy looks much stronger today than it did six months ago. To see this, let’s consider the average of real GDP and real GDI (gross domestic income).

Both GDP and GDI measure the total value of our economic output, although they calculate it differently. I favor the average of the two because it can give us a more accurate sense of our economy’s overall strength, especially when both GDP and GDI are moving in the same direction.

In the third quarter of 2023 (which is the last quarter for which we have real GDI data), the average of real GDP and real GDI rose by 3.4%. That was the largest increase since 2021, and it marked three consecutive quarters of real economic growth.

Strong economic data gives the Fed more leverage to raise rates, allowing it to continue fighting inflation without fear of pushing our economy into a recession.

The Bureau of Economic Analysis will release fourth quarter real GDI data this Thursday, March 28, along with its third estimate of fourth quarter GDP. I expect another strong report.

Matt Benjamin

Senior Markets Expert

Predicting the course of interest rates is no easy task.

That’s because the Fed really is data-dependent. The Federal Open Market Committee (FOMC) will chart its course on interest rates based on the economic data that comes in… and the analysis of that data by the 400 Ph.D. economists it employs.

And because predicting what the economy will do is inherently difficult, making projections on interest rates is also tricky – and it gets increasingly difficult the further out in time you project. Therefore, my rate forecast is also largely based on what I believe the economy will do.

And keep in mind that any kind of unexpected supply or demand shock – like another COVID-19 flare-up, an oil price spike, etc. – would force us to throw all our projections out the window.

But assuming those things don’t occur, I’m optimistic about the economy for several reasons, including the robust labor market, rising consumer optimism and strong consumer spending, not to mention the surprisingly healthy state of households’ finances (I just looked at the amount of money in Americans’ checking accounts – wow!).

Those things should keep the economy and labor market humming through the end of 2024, and they’ll also keep inflation elevated above the Fed’s long-term 2% target.

For me, that says there will be few, if any, rate cuts this year. And three other factors suggest that the Fed will be reluctant to cut rates by more than 50 basis points before the end of 2024.

First, there’s the presidential election. Though the Fed is nonpolitical, Powell and his colleagues would like to stay out of the fray if at all possible. So, all other things being equal, they may want to wait until after Election Day to alter interest rates in any significant way.

Second, I think Fed officials would like to keep rates high – that way, they have some ammunition to use if (and when) there is an economic downturn or unexpected shock.

Finally, there’s the stock market. Though the Fed would deny this, it’s clear it has reacted to market downturns in the past with more accommodative monetary policy. But this bull market seems to need little help from Powell and company. In fact, even though futures traders have been paring back their expectations for rate cuts since mid-January, the market has continued its rally.

The FOMC will meet six more times this year. I see, perhaps, one cut by year’s end and moderate cuts over the next two years, with the federal funds rate eventually settling near the Fed’s long-term neutral rate, which neither stimulates nor restricts economic growth.

[Editor’s Note: Interested in getting more commentary like this? Send your questions to mailbag@oxfordclub.com!]

The post What the Fed Missed at Its Latest Meeting appeared first on Wealthy Retirement.

The market expects the Fed to cut interest rates six times this year, which is a head-scratcher considering the continued strong employment numbers, rising wages and record holiday retail sales we’ve seen recently. It is highly unlikely that the Fed will lower rates that many times unless there is a major event that sends the economy careening.

The central bank will not cut rates simply because it has stopped raising them. (Keep in mind that zero or near-zero interest rates are not the norm.) And Fed Chair Jerome Powell won’t send interest rates back down just because inflation has slowed. He’ll need to see an economic downturn.

Lowering rates without a recession would fan the flames of inflation again, and Powell does not want to go down in history as the Fed chair who allowed inflation to return.

And while a recession certainly could occur, there are no signs that it will. So even if we do see a recession in 2024, it will be later in the year – too late for the Fed to squeeze in six rate cuts.

Who Can You Trust?

The markets still don’t seem to be in agreement on this issue.

The market for fed funds futures, which are futures contracts based on interest rates, is pricing in a 62% chance of rates being lower by March. By June, that number increases to 99.9%, and by November, the fed funds futures market calculates the probability of at least one rate cut to be 100% – a sure thing.

But the yield on the 10-year Treasury, which is a general proxy for interest rates, tells a different story.

Back in May, despite the fed funds futures indicating a 99% probability of a rate cut by March 2024, the yield on the 10-year Treasury began a huge move from 3.3% to a high of 5%. So the futures market was forecasting a recession, but the bond market was predicting an overheated economy that would lead to more inflation.

Then, after tagging the 5% mark, the 10-year Treasury yield promptly dropped like a New Year’s resolution in February. In just two months, it slid all the way back down to 3.8% – more in line with the fed funds futures market.

Since the end of the year, however, the yield has climbed back above 4%. The rally has been only a few weeks long, but if it continues, it should make investors at least question whether the rate cuts are in fact written in stone.

Anytime sentiment is so extreme – and a 100% probability of a rate cut is certainly extreme – it makes me strongly consider the alternative view.

There is no reason for the Fed to cut rates anytime soon, especially as early as March. And I see very little probability of six rate cuts by the end of the year.

In fact, I expect interest rates to be fairly stable this year. That’s one of the 10 big predictions that I made in the 2024 Forecast Issue of The Oxford Income Letter, which just hit inboxes today.

In the issue, I discuss the market, world events, the presidential election and the best stock to buy in 2024. And I guarantee the stock is not one that you’d expect.

The post Will the Fed Really Lower Rates in 2024? appeared first on Wealthy Retirement.

And this year, he’s upping the ante… Instead of issuing just one big prediction, he’s issuing 10!

Keep reading below for a sneak preview!

– Rachel Gearhart, Publisher

The beginning of a new year is always fun. We reflect on our accomplishments of the past year and create goals for the new one.

My year started out great when I ran 5 miles on New Year’s Day – my longest run in more than a year.

The following day, I had a doughnut for breakfast, so I’m back to even.

I expect 2024 to be fascinating for the markets, the economy and our country. It’s a pivotal year in so many ways.

Obviously, the election in November will have ramifications for years.

In the nearer term, everyone is wondering whether the Fed will or won’t change interest rates. And if it does, which direction will it be?

The overwhelming consensus is that rate cuts are coming in 2024. I’m not so convinced. We’re not seeing much evidence of a slowdown. That doesn’t mean it can’t happen, but the Fed is not likely to get out ahead of a recession and reduce rates to ward off a slowing economy. It will likely wait until it’s painfully obvious that the economy is in a downturn.

That doesn’t happen overnight (other than during a global pandemic). And even if that does occur again, it’s hard to imagine our government and many others immediately halting their economies as they did in 2020.

Last January, in the Annual Forecast Issue of my newsletter, The Oxford Income Letter, I said a new bull market would begin in 2023. It sure did. The S&P 500 gained 24% last year.

In 2022, I said value stocks would outperform growth stocks. That year was a difficult one for stocks, with the S&P 500 falling 19%. Growth stocks dropped 30%, while value stocks slipped 7%. It was certainly not a great year for value stocks, but their 7% drop was way better than the 30% haircut in growth stocks and the 19% reduction in the broad market.

With oil at around $75 per barrel, I observed that the oil market was undersupplied and projected that crude would soar to $140. It peaked above $130.

In January 2021, I wrote, “I expect inflation to take off in 2021.”

Boy, did it ever. Inflation rose from 1.4% in January of that year to 7% in December… and eventually reached a high of 9.1% in June 2022.

Keep in mind, this was not at a time when anyone was really expecting inflation. We were in the throes of the pandemic. Fed Chair Jerome Powell had just called the U.S. economy “extraordinarily uncertain.”

So I have a history of not only making bold predictions but also being right about them – especially when the crowd is leaning heavily in the other direction.

This year, in The Oxford Income Letter‘s Forecast Issue, which comes out on Tuesday, I explain why I’m once again bullish on energy. In fact, I make 10 predictions, including forecasts on interest rates (this one will surprise you), the markets, the economy and geopolitics, as well as a shocking projection about the U.S. presidential election.

I fully expect 2024 to be a wild year in a variety of categories. Investing successfully will require you to use some foresight, be nimble and be willing to take action. Those of you who do those three things should have a fantastic opportunity to make serious money this year.

The post Marc’s Bold Market Predictions for 2024 appeared first on Wealthy Retirement.

No, I’m not talking about economic data. There are plenty of positive economic indicators right now, like extremely low unemployment, strong wage growth, better-than-expected retail sales and falling inflation… but it’s not all flowers and honey.

Other data points, like low consumer confidence, are concerning. And everyone and their brother-in-law seems to be expecting a recession. (But perhaps that’s another reason to think we’ll avoid one.)

The true signal of where the economy is going will be corporate earnings.

The S&P 500’s earnings have slipped year over year in each of the past three quarters, but third quarter earnings are expected to be flat relative to last year’s third quarter. And remember, earnings expectations are a little dance put on by CEOs and analysts.

Corporate CEOs usually provide conservative guidance so they’ll look like heroes when they beat expectations. And analysts, whose firms are usually trying to win investment banking business from the companies they cover, go along with the game so they can stay in the companies’ good graces.

Earnings season unofficially started last Friday, when big banks like JPMorgan Chase (NYSE: JPM) and Wells Fargo (NYSE: WFC) reported quarterly results.

Over the coming weeks, we’re going to get an avalanche of earnings reports every day – both before the market opens and after it closes. And these earnings reports are often catalysts for strong stock moves.

For example, in August, DraftKings (Nasdaq: DKNG) surged as much as 16% in one day after beating earnings expectations and raising guidance.

And Autoliv (NYSE: ALV) jumped more than 10% in one day on an earnings beat in July.

When I’m picking stocks to trade heading into earnings, one of the things I look for is a consistent track record of beating expectations. That doesn’t guarantee the company will beat expectations again, but it does show that the company’s leadership is skilled at managing Wall Street and overdelivering on its own guidance.

Booz Allen Hamilton (NYSE: BAH) has beaten expectations in each of the last 16 quarters. The company will report earnings on October 27. Again, there’s no guarantee that its earnings will come in higher than Wall Street’s forecast, but I’m sure management doesn’t want to ruin a strong track record of earnings beats. My guess is that it has expertly managed Wall Street’s expectations so that the company’s numbers will be above Wall Street’s estimates.

In addition to a solid history of beating expectations, I like to see earnings and revenue growth. Booz Allen Hamilton is projected to increase earnings per share by 10% in its fiscal 2024, which ends in March. Revenue is forecast to grow by nearly 12%.

So in order to capitalize on earnings results, look for strong companies that have consistently beaten expectations and grown their earnings and revenue. That will strengthen your odds of picking a winner and making good money on a short-term trade.

This earnings season will be an important barometer for how the economy is doing. I expect the results to be stronger than anticipated… and to provide many opportunities for shorter-term profits.

The post This Earnings Season Should Ease Your Recession Fears appeared first on Wealthy Retirement.

We’re sharing the lead article from this month’s issue of Chief Income Strategist Marc Lichtenfeld’s newsletter, The Oxford Income Letter.

Typically, these articles are reserved for subscribers to The Oxford Income Letter, but we felt that the article below had such valuable insights into Marc’s current view of the market that it should be shared with everyone.

– Rachel Gearhart, Publisher

Heading into this year, nearly everyone – including me – called for a recession.

Federal Reserve Chairman Jerome Powell dreams of going down in the history books as the second coming of Paul Volcker, the former Fed chair who famously jacked interest rates higher in the late 1970s and early 1980s to tackle inflation. I expected him to push interest rates too high, causing the economy to hit the brakes.

However, as John Maynard Keynes famously said, “When the facts change, I change my mind.”

Powell has boosted rates considerably. The federal funds rate has jumped 5.25 percentage points in 18 months. And Powell has suggested that he may not be done raising them. Though the recent trend in inflation suggests Powell should take a breath.

In July, U.S. inflation came in at 3.2%, a steep drop from the 9.1% high that was reached in June of last year.

While I still believe Powell could overdo it, the fact is the economy is on solid footing and there is little reason to expect a recession going forward.

In fact, Goldman Sachs now assigns just a 20% chance of a recession in 2024, and many others are no longer calling for a recession in the immediate future.

Why Recession Fears Are Fizzling

One of the reasons a recession was expected was the anticipation of a decline in spending. The idea was that consumers would have burned through the savings they accumulated – thanks to those generous government checks during the pandemic – by this summer.

But there is no evidence of a slowdown in spending. In fact, just the opposite. American consumers are spending more than they ever have. In July, personal spending rose 0.8%. That’s accelerated from the 0.6% rise in June and 0.2% in May.

That’s not surprising considering many consumers feel flush with bubble-like home prices in many markets, record-low unemployment and rising wages.

Another contributing factor to diminishing recession fears is the Inflation Reduction Act. As with most things in Washington, the policy actually does the opposite of its name. It’s hard to fathom how half a trillion dollars in government spending will reduce inflation, but that’s politics for you.

The Inflation Reduction Act’s initiatives include…

• More than $1 billion to farmers under financial stress
• $11 billion to improve electrification in rural areas
• $12 billion to upgrade energy infrastructure.

Importantly, the plan has sparked a wave of investment in the U.S. from overseas companies. In fact, direct foreign investment in the U.S. is now more than double its average since 1995 and is just off record levels. Foreign investment is also more than double what China is bringing in. That’s a big change from 2020, when China and the U.S. were neck and neck for attracting foreign investment.

More international money is being invested in the U.S. than in any other nation. In 2021, 30% of all dollars invested in another country were invested in the U.S. And when I say “invested,” I’m not talking about a large purchase of a hot tech stock. These are foreign investments in manufacturing plants and facilities that provide jobs, put money back into the community and are expected to generate profits for investors.

Here are a few recent examples:

• South Korea’s Ecoplastic Corp., which makes auto parts, is investing $205 million in a new factory in Bulloch County, Georgia, which is expected to create 456 jobs.
• Toyota invested $3.8 billion in a battery plant near Greensboro, North Carolina.
• Taiwan Semiconductor Manufacturing Company is investing a whopping $40 billion in two facilities in Phoenix, Arizona.

What Does This Mean for Investors?

All of this economic activity, plus a two-year high in consumer confidence, is why I expect GDP growth numbers to be higher than the official 1.9% estimate in 2023 – and considerably higher than the 0.5% forecast for next year.

The markets also suggest a solid economy. Bond yields continue to move higher, indicating inflation may not be over with. And the stock market, while not having a great summer, has been up since the beginning of the year.

The stock market is a forward-looking indicator, generally predicting economic conditions about six to nine months out.

Now, there is one big potential monkey wrench that may be thrown into the mix – a government shutdown later this month.

For the federal government to continue operating as normal, an agreement on spending must be reached before the end of September. As of now, that doesn’t seem likely, as the Freedom Caucus (a group of around 45 Republicans) is calling for a reduction in spending (which would be difficult enough to achieve) as well as requiring some other political demands to be met. These demands include more action on the border, the end of what the caucus calls “woke” policies in the Department of Defense and no “blank check” policy in regard to Ukraine. Democrats are unlikely to agree to any of those things.

A government shutdown wouldn’t be positive for the economy, but any spending that is delayed because of the closure would just get pushed out several weeks or months.

If the economy remains on solid footing and performs better than expected in 2023, we should see further gains in the stock market well into 2024.

There’s a lot of doom and gloom out there in the mainstream and nonmainstream media. But the data doesn’t support it, and neither do conditions on Main Street.

Things aren’t perfect. Prices are still too high after the recent bout of high inflation, but the American economy is humming along.

The post The Recession That Isn’t Happening appeared first on Wealthy Retirement.

It’s what investors climb when everyone fears that the economy is so bad that the market will fall.

That’s exactly what’s been happening in 2023.

Endless forecasts of recession have scared investors away from putting money into the market. They’ve caused corporate managers to lay off workers and institute hiring freezes, and they’ve caused a national pessimism that has yet to lift.

Bearish sentiment is quite high. According to the most recent American Association of Individual Investors Sentiment Survey, 36.8% of investors are bearish. This is the 75th time in 80 weeks that the reading was above its 31% historical average.

Meanwhile, only 29.1% of respondents said they are bullish. That’s the 78th time in 80 weeks that the reading was below its 37.5% historical average.

The market certainly isn’t acting as if a recession is coming, however. The S&P 500 is up nearly 12% year to date, while the Nasdaq has soared more than 26%. The market tends to be a forward-looking indicator, and it’s tough to imagine it would be up so much if the economy were about to tank.

Throughout my career, I’ve talked to people who were holding off on investing, either because we were in a bear market and they were waiting for it to go up…

Because we were in a bull market and they were waiting for it to come down…

Because we were in a recession or one was coming…

Or a host of other reasons.

As I remind investors, there is always something to be worried about. The world has very real problems, and it seems these days, in many countries, clowns are running the governments and not taking a serious approach to solving those problems.

Fortunately, the free market is trying to address some of them.

Over the decades, there have been countless wars, crises (humanitarian, financial or political), scandals, crashes and all kinds of other catastrophes that have made us read the latest scary story or stay glued to our cable news program.

Here are three things you can do to climb the wall of worry and make money, rather than standing there looking up at it.

No. 1: Turn Off Cable News

No matter your affiliation, the political talk shows have one goal – to scare you into believing that the other side is going to make your life and the country worse. This won’t make you happier. And if you listen to it, it will cost you money.

These shows have been scaring the bejesus out of their audiences for a couple of decades now. And the market has gone up an average of 8.2% per year over the past 20 years. That period includes the presidencies of George W. Bush, Barrack Obama, Donald Trump and Joe Biden.

You probably were not a fan of at least one of them (maybe more). And though there were certainly bumps in the road and even a crash or two, the market rose throughout that time.

Ignore the blowhards who are trying to keep you scared. Instead, invest in American (and global) companies that are actually solving problems for their customers.

No. 2: Look at the Data

As I mentioned above, this country (and the world) has seen its share of calamities and atrocities over the decades. And yet the market has consistently risen.

Of course, it doesn’t rise every year. There are bear markets and rough patches fairly regularly. But over time, stocks rise.

Since 1922, the market has returned an average of 10.1% per year. That period includes the Great Depression, the Great Recession, World War II, the turmoil of the 1960s, a global pandemic and other very bad times.

And despite all of those things, for 100 years, we earned 10% per year on average.

No. 3: Listen to Warren Buffett

If you don’t want to listen to me, listen to the greatest investor of all time.

Warren Buffett famously said, “Be fearful when others are greedy and greedy when others are fearful.”

Investors are very fearful right now, but Buffett is buying stocks, particularly energy stocks. It’s usually a very good idea to follow him.

Buying stocks now means you’ll get decent valuations, strong dividend yields and low prices. And when others finally get greedy, you’ll be sitting on some great investments that you added to your portfolio when no one else would touch them.

Jump on that wall of worry as it continues to climb higher.

The post Climb the Wall of Worry appeared first on Wealthy Retirement.

He’s not alone in his thinking.

Nearly everyone with an opinion on the matter has come to the same conclusion. But anticipating a recession may be like expecting the Mets to win the World Series. I wonder if we’re all waiting for something that is not going to happen.

I don’t come to that conclusion lightly. In fact, like most people, I said in January I believed we would have a recession, albeit a mild one, sometime this year.

But I’m questioning that idea right now.

Recession in 2023?

While inflation is still too high, GDP did grow in the first quarter. Growth wasn’t exactly white-hot at 1.1%, but it was positive. Importantly, it’s tough to have a recession when unemployment is at record lows. And it seems that everyone is participating.

The unemployment rate for African Americans, which is usually higher than that of other groups, was 5%, a record low. The unemployment rate for women is the lowest it’s been in 70 years. And suffice it to say, in 1953, there weren’t as many women who wanted to be in the workforce.

Wages are climbing as well.

Generally speaking, anyone who wants a job has one, they are probably making more money than they did last year and most can likely easily switch their jobs if they want to.

It’s hard to have a recession under those circumstances.

Furthermore, the stock market, which is a forward-looking indicator, is up year to date.

After an abysmal 2022, the S&P 500 has gained more than 8% this year. Meanwhile, the Nasdaq is up nearly 17%.

It may not feel like it because the market has been choppy lately – especially with the news of various bank failures – but so far, the market is putting in a very good performance in 2023.

If we look at how stocks are performing, we can see that it suggests a recession is not imminent.

But it’s not all clear skies ahead. This market and economy don’t feel good.

Inflation is pinching everyone’s budgets. Several banks have failed, and there is concern that more will follow.

Plus, the debt ceiling is a big wild card. If the president, House and Senate can’t get together on a deal and the government shuts down as a result, there will be some real economic pain inflicted on the American people.

Despite the Federal Reserve lifting rates, the bond market is not following. Ten-year Treasurys still yield around 3.5%, signaling that rates should fall. And the futures market predicts a 70% chance of a Fed rate cut in September.

Energy prices have come down in recent weeks – another sign of weaker economic output.

And, of course, the news that comes out on a daily basis with random (and not random) acts of violence, ineptitude in Washington and geopolitical concerns do nothing to instill confidence.

How to Prepare

So how should you play it?

For your safe and short-term funds, there are few better deals than Treasury bills right now. If you’re concerned about a U.S. debt default, you can always buy a certificate of deposit instead.

If you have money to put to work in the stock market, don’t wait. It may feel like it’s not the right time, but that was the case in early 2009 when the economy was still a mess. And yet that was precisely the right time to invest.

Furthermore, you can’t time the market. By the time you and others believe we have the all-clear signal, the market will be much higher than it is now.

Again, the market looks forward. So if the economy is better, the market will have already moved.

I particularly like the energy sector and metals. If we avoid a recession, those sectors and others should do well. And because the energy sector has fallen over the past few weeks, there are a lot of cheap energy stocks.

I think regional banks are also interesting and are perhaps offering the buying opportunity of a lifetime. Their prices have gotten smashed, and there are quality banks that are paying yields over 7%.

This is obviously a volatile sector right now, so if you put money to work in the regional banks, you need to be prepared for a wild ride. But I expect investors to be well rewarded over the long term.

Lastly, remember the best time to buy a stock is when it feels uncomfortable. That means you’re probably getting a great price because so many others have sold it.

What are your thoughts? Are we going to see a recession soon? Let me know in the comments.

The post How to Prepare Your Money for Recession 2023 appeared first on Wealthy Retirement.