FED is Pausing = Stock Crash Coming?

Federal Reserve Interest Rates

The Federal Reserve is expected to raise interest rates for the last time during their next meeting on May 3rd. They are expected to raise interest rates by another 25 basis points and announce a pause.

End of Rate Hike Cycle

• The Fed is coming to the end of their interest rate hike cycle.

• There are concerns that when the Fed pauses or cuts interest rates, the stock market will crash and there will be a recession.

Decoding Market Price Action

This section discusses the current state of the market's price action and whether it indicates a bull or bear market.

Bull Market vs Bear Market Rally

• The markets remain on an uptrend with the 20 EMA above the 40 EMA, indicating a short-term uptrend.

• The price is above the 200 moving average, indicating a strong uptrend.

• We are seven months into a bull market, but some people believe we are still in a bear market rally.

• If this is not a bull market and it's a bear market rally, then it's the longest bear market rally in history.

Technical Levels

• We are approaching significant resistance levels on technical charts.

• Breaking through resistance levels depends on earnings reports from major companies.

• A pullback may occur even if we're still in an uptrend due to wave patterns.

Bull Market Confirmation

• Eventually, we will confirm that we're in a bull market; it's only a matter of time.

• A pullback before breaking out would be preferred by some investors.

[t=0:01:08] Conclusion

The video concludes with a summary of the current state of the market and what to expect in the future.

Market Outlook

• The Federal Reserve is expected to raise interest rates for the last time during their next meeting on May 3rd.

• We are approaching significant resistance levels on technical charts, but eventually, we will confirm that we're in a bull market.

• A pullback may occur even if we're still in an uptrend due to wave patterns.

Investing in Undervalued Stocks

In this section, the speaker discusses his investment strategy and how he only invests in undervalued stocks that have retraced to a support level. He also talks about how prices have been going up recently, making it difficult for him to find undervalued stocks.

Key Points:

• The speaker only likes to buy stocks if they are undervalued enough and have retraced to a support level.

• Prices have not been coming down recently, making it difficult for the speaker to find undervalued stocks.

• The decision to invest should be based on the fundamentals of the company, price action, and valuation rather than short-term market predictions.

• Holding great companies will eventually pay off even if they don't go up immediately.

Importance of Fundamentals in Investing

In this section, the speaker emphasizes that investing decisions should be based on the fundamentals of the company rather than short-term market predictions.

Key Points:

• Investment decisions should be based on the fundamentals of the company, price action, and valuation rather than short-term market predictions.

• It is impossible to predict where the market will go in the short term.

• Great companies will always go up eventually.

Earnings Season and Lowballing

In this section, the speaker talks about earnings season and how some CEOs use lowballing tactics to set expectations low before beating them with better-than-expected earnings reports.

Key Points:

• Earnings season has just started with banks being among the first to announce their results.

• Some CEOs use lowballing tactics by setting expectations very low before beating them with better-than-expected earnings reports.

• Panic selling due to bad expectations is the number one mistake people make.

• Roughly 20% of companies in the S&P 500 have announced their earnings, and more than 77% of those companies reported better-than-expected results.

Corporate Earnings and Contraction

In this section, the speaker talks about corporate earnings and how they have already been contracting since Quarter Two of last year.

Key Points:

• Some people believe that the stock market will go down because corporate earnings are going to contract, but this is wrong.

• Corporate earnings have already been contracting since Quarter Two of last year.

• We are currently at the bottom of the earnings contraction.

Corporate Earnings and Economic Indicators

The speaker discusses corporate earnings and economic indicators, explaining how the stock market moves ahead of the economy. They also discuss various economic indicators that suggest both positive and negative trends.

Corporate Earnings

• This quarter's earnings are negative but better than expected.

• The market moves 6 to 9 months ahead of the economy, so it is rallying in anticipation of future growth.

• If companies announce better-than-expected earnings with positive forward guidance, the market should continue to rally.

Economic Indicators

Index of Leading Economic Indicators (LEI)

• The LEI has been coming down since peaking in February of last year, signaling a recession.

• However, if everyone expects a recession and is mentally prepared for it, it is already priced into the markets.

Philly Fed Survey vs. New York Fed Business Survey

• The Philly Fed Survey was negative while the New York Fed Business Survey was positive.

• Consumer spending is up 9% YoY to $1.1 trillion for Q1 2023.

Conclusion

• Economic indicators are useful for entertainment purposes only and not for making investment decisions.

Can We Avoid a Recession?

In this section, the speaker discusses whether or not it is possible to avoid a recession and how predictions about the market are often inaccurate.

Predictions About the Market

• The speaker notes that predictions about the market are often inaccurate and should be ignored.

• He cites an example of a financial expert who initially said that a recession was unavoidable but later changed his prediction.

Don't Fight the Fed

• The speaker argues against the common belief that when the Federal Reserve raises interest rates, the market will go down. He provides historical data to show that more often than not, when interest rates are raised, the market actually goes up.

• He also notes that when the Fed pauses its rate hikes, six months later, markets tend to be up double digits. However, he cautions that no one can predict what will happen in the market and advises sticking to an investment plan regardless of predictions.

Current Market Sentiment

In this section, the speaker discusses current market sentiment and how it may impact investments.

Negative Sentiment

• The speaker notes that as of April 2021, public pessimism on the economy has hit a new high and fund managers are very bearish with low allocation to stocks relative to bonds. This negative sentiment may impact investments in stocks.

• He cites various surveys which indicate increased pessimism among investors regarding stock investments.

Stick to Your Plan

• Despite negative sentiment in markets, he advises sticking to an investment plan and not making decisions based on predictions or market sentiment.

Equity Allocation and Market Outlook

In this section, Adam Khoo discusses equity allocation and the market outlook. He explains why it doesn't pay to be overly bearish in the market and advises investors to look at individual companies instead of making predictions based on the overall market.

Equity Allocation

• After the low in March 2009, it doesn't pay to be overly bearish in the market.

• Look at individual companies that are undervalued and have a support level.

• Keep adding shares or holding your position if you're a long-term investor.

• If you're a trader, make decisions based on your plan and ignore predictions.

Market Outlook

• It doesn't pay to be overly bearish in the market because most people who are very bearish will never get invested or may sell in panic and miss great opportunities.

• Make decisions based on your plan and ignore the predictions and worries of the world.