Some clouds move back in after Fed day

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There was nothing on Wednesday that improved our outlook for markets based on insider sentiment. If anything, the Federal Reserve's stoic approach towards subdued inflation may have dimmed the outlook for a prolonged summer rally driven by performance-chasing investors. During his press conference yesterday, Jerome Powell repeatedly shrugged off questions and concerns about the Fed's ability to consistently meet its inflation target which is for a 2% annual rise in the Personal Consumption Expenditure (PCE) price index. That gave little comfort to those, including the president, who were hoping for stronger hints of a rate cut.

For those keeping track, the March PCE was 1.5%.

Some are starting to wonder if 2% inflation is a Fed ceiling (click for larger)

As we wrote earlier this week, the Bernanke-Obama-Yellen (BOY) playbook has made a comeback this year as investors have piled into large-cap growth situations. In the BOY years, the strategy was to take advantage of loose monetary policy during a period of lacklustre economic growth. This time around, however, monetary conditions are not as accommodating and Jerome Powell has just thrown cold water on any expectations that the Fed is going to engineer a hot summer for stocks.

Meanwhile, the clouds have moved in a bit on our Top 10 mega-cap leaders which we wrote about in our US market update on Wednesday. The Top 10 mega-caps represent the best-performing stocks with market caps over $100 billion during the past three months as of April 29th. We suggested that, based on experience last year with FANG stocks, we would need to see most of the Top 10 keep a Sunny or Mostly Sunny INK Edge outlook in order to have confidence that a sustained momentum-driven rally can continue into late summer. As it turns out, as of May 1st, we are down to six on our hot list:

  • Walt Disney (DIS) SUNNY
  • QUALCOMM  (QCOM)  SUNNY
  • Microsoft (MSFT) SUNNY
  • Facebook (FB) MOSTLY SUNNY
  • Amazon.com  (AMZN) MOSTLY SUNNY
  • Cisco Systems  (CSCO) MOSTLY SUNNY

Our rankings can move around a lot during the week, so things could change over the next few days. However, only a few days ago, 8 of the top 10 were on the hot list. I would be surprised if we were to see the list shrink much more before next week's US report, but we do live in interesting central bank times.

INK Edge outlook ranking categories (Sunny, Mostly Sunny, Mixed, Cloudy, Rainy) are designed to identify groups of stocks that have the potential to out- or under-perform the market. However, any individual stock could surprise on the up or downside. As such, outlook categories are not meant to be stock-specific recommendations. For background on our INK Edge outlook, please watch our short video or visit our FAQ #5 at INKResearch.com.

This post first appeared on INKResearch.com.

 

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