Our September meeting comes at a difficult time for the stock market. We have macro headwinds for so many companies, yet those headwinds are not strong enough to have the Federal Reserve pause in its relentless rate increases. It has also become obvious to us — but not to the vast majority of commentators — that the central bank won’t be cutting rates anytime soon. That’s because we’re being flooded with stimulus money from another part of the government: Congress. As Club members you know that we believe the economy is still very strong and interest rates on what’s known as the long end of the curve are too low. Until the rate on the long end, and here I am speaking of the 20-year Treasury, goes above the short rate that the Fed controls, we will not see any real cessation in the economy. However, we are only about a point away from the curve going flat, which will help the Fed’s cause. But here’s what really matters. As I said in a recent Sunday column , money can and will be made in this tightening cycle. With the exception of September and the months of February and August, the stock market has been fairly robust in 2023. That’s not supposed to happen. We should not fear the Fed, as so many are doing today. This kind of bullish move during a tightening cycle is not exceptional. The stock market has rallied multiple times during rate increases. For example, the S & P went rose from November 1982 to August of 1984 when the 30-year Treasury jumped to 12.8% from 10.4%. We saw a similar move from June 1986 to July 1987, and most recently from October of 1998 to January of 2000. Perhaps more important, given the Fed’s aggressive ways: We must be ready for the burst we typically get when the central bank wins its war against inflation. The market has gained 13% on average when a tightening cycle is completed. We don’t want to jump the gun, but we are not all that far from that moment. We need to be buying, not selling, because there are plenty of companies doing well despite the Fed and it is our job to find them before the cycle ends so we do not miss the move up that almost always occurs. We are also mindful that the IPO market has come roaring back to life with deals, large deals like Arm Holdings (ARM) and Instacart (CART) being priced to move. At the same time, witness the revival of M & A after the Federal Trade Commission failed to stop deal between Activision Blizzard (ATVI) and Microsoft (MSFT) and could not upend the combination of Amgen (AMGN) and Horizon (HZNP). Those two wins have created a more positive backdrop, so necessary if we are going to have stock taken out of the market. So, I am not saying don’t fear the Fed. I am saying work around the Fed as you had to several times during the 80s and 90s, and we will be fine. Today is a good day to put money to work if you haven’t already. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Our September meeting comes at a difficult time for the stock market. We have macro headwinds for so many companies, yet those headwinds are not strong enough to have the Federal Reserve pause in its relentless rate increases.
It has also become obvious to us — but not to the vast majority of commentators — that the central bank won’t be cutting rates anytime soon. That’s because we’re being flooded with stimulus money from another part of the government: Congress.
