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Yes, what happens next is still ALL about the Fed

Jan 30, 2023

Good morning!

I had a sneaking suspicion the markets might open in the red this morning after last week’s amazing run. In fact, I tweeted about the possibility of a rug pull late in the day after an appearance on Liz Claman’s show last Friday. (Watch) Between the FOMO and the weak money, there’s simply too much money on the table not to!

Don't worry, though.

The bulls will be back when they’ve run both outta town. That's how the game is played.

Stay focused meanwhile!

Here’s my playbook.

Still ALL about the Fed

The headlines are all about earnings because that’s what attracts eyeballs, but what happens next is still very much about the Fed. As I noted this morning on Varney & Co during a conversation with the fantastic Ashley Webster, “Rallies don’t die of old age. The Fed kills ‘em.” (Watch)

Futures continue to price in 25 bps, but I think Team Powell may raise rates by 50 bps (½ of 1%, in plain English) to prove that it’s in charge. 🤦‍♂️

MyPOV: The Fed still does not understand the damage it’s causing... that’s why I don’t rule out the possibility. Clearly, I’m not alone in my thinking, which is why traders are trying to get ahead of that this morning. As always, it’s an opportunity for savvy investors!

Meanwhile, hedges in place and perhaps a few speculative putskies make sense, at least for a bit longer.

Buy these stocks if you’re worried about China

China is as dangerous as it gets. Everybody except Washington seems to recognize that.

Here’s the problem. The US defense industry is operating on a peacetime footing and, as a result, is totally depleted because of weapons sent to Ukraine. The situation is so bad that some experts estimate that we’ll run out of critical systems and munitions within a week if China moves on Taiwan. (Read)

I agree.

Most investors could double defense stock holdings, yet still not have enough. My favourite choice has returned 35.2% since I shared it with the One Bar Ahead® Family—versus the S&P 500, which has returned a respectable 9.22% over the same time period. I recently recommended another key defense stock, and it’s poised for a big move... for reasons I’ll talk about later this morning. Upgrade to Paid

I think Xi may move by 2024/2025—using the election as a strategic distraction—rather than 2028, as is the case in this well-thought-out scenario analysis. Interesting reading, nonetheless. (Read)

EVs now cost more to fuel than piston clankers

Research shows that rising electricity prices and stabilizing gas prices have made EVs more expensive to fuel than conventional piston clankers using dinosaur juice. (Read)

Hmmm…

OBA Implication: Many investors continue to view energy as an on/off switch, but they’re kidding themselves. Even the most aggressive scientists estimate that it’ll be decades before the shift to electric is complete. Which is why savvy investors should look at the opportunity as a continuum.

You can't keep a good clown down

McDonald’s may buck the trend when the company reports earnings tomorrow if falling commodity prices have played a material role in boosting margins, like I suspect. (Read)

Shares are up 11.5% vs. the S&P 500, which is down -6.4% over the past 12 months.

And they say fast food isn’t good for ya??!! 😊

Steel may be a deal

Steel’s been on fire lately. In fact, materials are the third-best-performing sector over the past three months, returning 13.43%. (Read)

It’s easy to understand why. China’s coming back online at a time when mills around the world are still shuttered following COVID and operating at limited capacity to cope with inflation/supply chain challenges.

Ways to play. The easiest is to buy an ETF like the Materials Select Sector SPDR Fund (XLB), but that’s a pretty broad brush. The VanEck Steel ETF (SLX) would be considerably more focused. My choice would be to go for the jugular and an individual name like United States Steel Corp. (X) if I were a betting man.

If...