April was pretty brutal for investors. But kind of hard to complain given the pace of gains over the past several months. So, it was as good of a time as any to take some profits off the table.

May has started off strong with gains accruing across the board. However, one does have to ponder how much more upside is ahead until the Fed is truly ready to lower rates. So let’s appreciate what the tea leaves are telling us about inflation and rates to guide our investing plan in the weeks and months ahead.

Market Commentary

My commentary from earlier this week sets the right backdrop for this conversation: Don’t Get Sucked into THIS Stock Bounce.

Yes, there was reason for a touch more optimism on the inflation front after a slate of economic reports last week including a decline in wage inflation along with poor showings for ISM Manufacturing and ISM Services. This all led to an improvement in rate cutting odds for July and September Fed meetings.

On the other hand, that is still pretty far in the future with a few obstacles still in our way:

• Traditionally soft summer months for stock traders
• Presidential election typically a rough patch until results are in
• Fed much more patient about the next move which Red Bull addicted traders too often forget.

The PPI report on 5/14 followed by CPI on 5/15 will give us some fresh clues on the pace of inflation and likely Fed intentions. But given the lumpiness of inflation data, then they will need more than just 1 set of good reports to increase confidence to start cutting rates.

As Powell has repeated several times over, they would rather cut too late, than too early. That is because they are fearful that any embers of inflation could reignite making the job that much harder to contain.

And yes, is the answer to your likely next question. That being that the Fed is more willing to start a recession in this process than to allow inflation to remain too high for too long.

It is this level of patience and persistence that traders too often neglect in their predictions. Which is why stocks raced up ahead of the fundamentals leading to this appropriate time to pullback.

Price Action & Trading Plan

Moving Averages: 50 Day (yellow) @ 5,139 > 100 Day (orange) @ 5,005 > 200 Day (red) @ 4,716

The 100 day moving average has fused with the psychologically important 5,000 level for the S&P 500 (SPY) to provide a pretty solid level of support. Yet any stickiness to the inflation picture…or concerns out of the middle east…or additional banking issues…or (fill in the blank with any other negative event) and we could easily see stocks test the 200 day moving average.

If this scares you, then might I recommend you give up investing as a hobby. With the proper perspective we can easily see the benefit of rising from a low of 3,491 in October 2022 to where we stand now. Thus, backsliding about 5% from current levels should not truly stoke fear in anyone’s heart.

This is not a time to be bearish either. Just calling for a more cautious approach with a higher concentration in value and defensive picks that can better withstand any downside.

Then as the market explores the lower boundaries of this trading range, then best to switch to offense. That being to buy up the best growth stocks at more attractive discount prices.

What To Do Next?

Discover my current portfolio of 12 stocks packed to the brim with the outperforming benefits found in our exclusive POWR Ratings model. (Nearly 4X better than the S&P 500 going back to 1999)

This includes 5 under the radar small caps recently added with tremendous upside potential.

Plus I have 1 special ETF that is incredibly well positioned to outpace the market in the weeks and months ahead.

This is all based on my 44 years of investing experience seeing bull markets…bear markets…and everything between.

If you are curious to learn more, and want to see these lucky 13 hand selected trades, then please click the link below to get started now.

Steve Reitmeister’s Trading Plan & Top Picks >

Wishing you a world of investment success!

Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
CEO, StockNews.com and Editor, Reitmeister Total Return

SPY shares rose $1.46 (+0.28%) in premarket trading Friday. Year-to-date, SPY has gained 10.05%, versus a % rise in the benchmark S&P 500 index during the same period.

About the Author: Steve Reitmeister

Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks. More...

More Resources for the Stocks in this Article