Expect More Market Whiplash in the Near Future

Markets will give us more Whiplash near-term

Greetings investors! The seemingly unstoppable rally on Wall Street (thin though it’s been for most of its run, as I have been discussing) has been fed by ever-growing inflows into large-cap and Mag 7-related funds especially. I’m going to help you prefer for the following market whiplash.

The week before this past one that started to suddenly broaden out, as Wall Street ramped up its bets on a rate cut in September by the Federal Reserve. Briefly, the top-heavy components of the market took a back seat to long-suffering small caps, which zoomed higher in their biggest two-day run in several years.

As this past week began, it looked as if things were really going into overdrive, following the attempt on President Trump’s life. Everyone was talking about the “Trump trade” and the notion that a now even more likely Trump win in November will Make Stocks Even Greater Again.

But that all hit a sudden wall thanks to a double-whammy which knocked the legs out from under white-hot semiconductor stocks especially. Between augmented measures from the Biden Administration crimping investment activity and such (targeting China chiefly, of course) and Trump weighing in for good measure about all the “protectionism” he plans, traders suddenly had more than ample excuse to cash in some chips (pun intended.)

Amid all that market whiplash, the newly broken-out small cap stocks surrendered much of their gap higher into breakout (?) territory as you see above. This bears watching in the days ahead as to just how serious investors are on these bets now on market “rotation” and the idea that good times will return to the broader market.

As you should recall, I have been articulating for a while now how The Great Stagflation, going forward, was going to eventually force people out of the nosebleed-high Big Tech and its like and into 1. small caps with superior fundamentals, 2. commodities of most kinds, 3. dividend stocks with the best coverage and 4. legitimate value, whatever the company’s size.

I still believe that.

But near-term–as a number of wise pundits were pointing out this past week–there is some trouble over the idea that now is the time that small cap stocks can broadly catch up.

Sure, perma-bulls like Fundstrat’s Tom Lee are predicting big fireworks, despite the abrupt pullback of the last few trading days; he insists that small caps as a group can rise a whopping 40% just between now and prior to the election due to the recent “rotation” picking up its pace. But historically small cap stocks do their best when economic growth accelerates after a recession or weak period.

Not when it appears we are heading into a recession. We’ll see. Be prepared for market whiplash!

Among other things, for small caps’ breakout not to be revealed as a fake out, we need some help from the Fed a week from Wednesday (more on that a bit below.)

Speaking of breakouts, as I also mused to our Members in an email midweek, I have remained skeptical that now was the time for a fresh precious metals breakout; and that I was reserving judgment on that, too.

Sure enough, gold, silver and copper alike joined the beatings elsewhere the back half of this past week. For gold, it dropped about $100/ounce top to bottom over a couple days’ time, for now negating the nascent breakout you see above.

BUT, the good news was that–for a refreshing change–most of the metals-related equities and ETFs fared considerably better. Our presently-recommended copper and silver stock ETFs, in fact, even eked out slight gains in Friday’s session, along with some individual recommendations.

What we do about all of this now is…wait and watch. It’s been too easy to get caught up in short-term moves and get whipsawed, as we’ve painfully learned with a couple trades of late!

Near-term, we need to see whether Fire Marshal Jay and his crew at the Fed confirm–or dash–the markets’ essentially 100% all-in bet of an initial rate cut coming in September, when they meet the last two days of this month.

THIS PIECE out at week’s end by Breitbart News’ John Carney and Alex Marlow articulate the stance the Fed should be taking. And it wouldn’t be the first time the central bank pushed back against markets’ not taking it seriously.

The trouble is, Powell’s own winks and nods of late have been joined by a few other Fed heads. Thus, I think they will continue to tease markets in their messaging post-meeting a week from Wednesday that–barring anything out of left field–we’re prepping everyone for an “adjustment” or some “Mid-cycle course correction” step in September. Be on the lookout for market whiplash.

What they do–and markets’ reactions–might prompt me to make some added adjustments to our portfolio mix. Yet as I said to our folks this past week (and I’m sure you agree!) we’re all tired of getting whipsawed.

In any case, it’s wise to primarily be crafting our “road map” for the post-election time frame. Some of this we can be doing now…and some will obviously have to wait until we know the makeup of things after November 5.

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A first step for you in this process is our recent “Road Map” Part 1 we put out several days ago.

For just the audio of this, GO HERE.

For the video (with some charts and graphs added in) GO HERE or just click the above image.

As the title implies, both of these are going to address the fact that none of you reading these words has ever had to navigate the kind of environment that is evolving. Brace your necks for the market whiplash!

This first discussion deals chiefly with domestic U.S. financial, economic and market issues; and more so, what the TRUE differences will be between upcoming Democrat or Republican administrations. (NOTE: Pay especially close attention to the very stark differences between what “Trumpflation” and “Bidenflation” would give us!)

Next up–stay tuned for Episode 2, where we go more into geopolitics and the ongoing retreat from globalization…tariff policy…China having the upper hand in some areas even as its Achilles’ Heel of debt and overcapacity increasingly affect everyone…and LOTS more.

As ever, I’ll welcome your comments and questions.

All the best,

Chris Temple
Editor/Publisher

Saturday — July 20, 2024

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