Way back in the early 80s, when MTV actually played music videos, The Clash was a staple for the innovative cable channel. Some of the English punk band’s lyrics for the song Should I Stay or Should I Go aptly fit the NASDAQ’s current position.
Verse 1’s opening lyrics:
Darling, you got to let me know
Should I stay or should I go?
And verse 5’s:
This indecision’s bugging me (Esta indecisión me molesta)
Together, they almost perfectly sum our feelings for the current state of the NASDAQ. Just when the index looked poised to lift off, it stumbled. Indices are getting caught in the cross currents of conflicting messages coming from Federal Reserve officials.
In the Fed’s most recent notes, “a substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate.” (1) The more dovish tone encouraged bulls and bumped stocks higher.
Today, Monday, November 28, 2022, James Bullard, the President of the St. Louis Federal Reserve Bank said he believes the markets are misreading the Central Bank, that inflation is still “far too high”, and rates will remain elevated through 2023. Ultimately, he believes rates will be in the 5-7% range before hikes are paused or stopped. (2)
Indeed, This indecision’s bugging me (Esta indecisión me molesta) and investors alike.
The Fed’s back-n-forth pickle ball commentary has bulls and bears in a box. The NASDAQ essentially traded between 11,000 and 11,500 for the last 10 sessions. After bottoming out in mid-October and breaking its downtrend, the index’s prospects for a rally sure appeared promising.
But then the NASDAQ stalled on the verge of confirming a new uptrend. Unfortunately, prices could go either way. Hopefully, buyers can lift the tech-laden index beyond 11,500. If not, and sellers pull the NASDAQ under 11,000, then we can go bottom fishing, again.
Last week, we tilted towards stock going higher. Now, we are 50/50. As it is, investors need to exercise patience and wait to see if they should stay or go.
Metals and Mining, Utilities, and Materials were the top three performers for the last week. It’s an interesting mix. Metals and Mining hint at persistent inflation. Utilities are defensive and usually do well when the economy is sluggish. Materials can be considered a defensive play too.
It’s the second week in a row that more defensive exchange-traded funds (ETFs) lead the way. If it continues, investors might consider preparing for an uncomfortable combination of rising rates and an economic slowdown.
We were so excited to add an idea here a couple of weeks ago when the sun was shining. Now that clouds have darkened the skies, our vitamin D levels have dropped and dampened our bullish mood. Hopefully, the NASDAQ breaks through the top side of its boxed range before we meet again, and we can add another idea next time.
1 – https://www.federalreserve.gov/monetarypolicy/fomcminutes20221102.htm
2 – https://www.yahoo.com/now/fed-bullard-says-markets-underestimating-170833373.html