Stocks, as measured by the S&P 500, ripped 9% higher in July as investors began to anticipate a "pivot" by the Federal Reserve on interest rates. Indeed, just last month in these pages I mentioned the potential for this pivot. Our buys for clients in mid-June with cash we raised earlier this year served us well. Now, however, things get trickier. The S&P has rallied ~17% from its summer lows. Unfortunately, I do still believe that longer-term those prices will not be our ultimate lows. However, the short-term outlook is muddier. We're beginning to see signs inflation is cooling and investor sentiment remains dour (that's actually good). But, while inflation may be cooling, it's still a very hot 8.5% meaning investors may be getting ahead of the Fed. All-in-all, a mixed bag.
Two things to further ponder in the coming weeks; the possibility this is an "all clear echo," and/or we see a "lockout rally." An "all clear echo" refers to the market's ability to make us think things are "all clear." That is to say, that the trouble has passed and it's time to "get back in" (again, that time was mostly in the middle of June, when things looked their bleakest). A "lockout rally," a term coined by world renown investor Mark Minervini, refers to a market that, in the first few weeks to months after a low, offers investors who aren't invested no chance to get back in. Here, an investor may keep telling him/herself that they'll buy when the market pulls back a few percent, except it never does. They become "locked out." Eventually, these investors throw up their hands in frustration and buy. The pain threshold will be different for each investor, offering new buyers daily for weeks on end. The lockout rally ends when everyone has bashed their way in, ignoring proper risk management. What will we see the next month or two? I'm not sure. But I'm on the lookout for an "all clear echo" and a "lockout rally."