NO MORE Interest Rate Hike The Pivot, the Pause or the Hop

Need 1on1 advice? Start here: https://howtofinancemoney.com/contact-details?el=ytvideo ===== US Federal Reserve kept interest rates unchanged for the first time since March 2022 after it embarked on its fastest monetary policy tightening in 40 years This decision stems from US May CPI inflation report released the day prior, showing headline inflation was at 4.0 % (red arrow), down from 4.9% last month (actually quite significant progress). The last time it was at this level was 2 years ago Core inflation (excluding energy & food prices) came in at 5.3 %, slightly down from 5.5% the previous month (Fed prefers to look at this one for its decision) Therefore, we have arrived at 1st stage of Fed Pivot – the Pause, per what I shared previously, however, it’s NOT a Full Stop but instead it’s a Hop (new term) Analogy – it’s like a man proposes to his partner after dating for 10 years, but then said he will only do the wedding ceremony 3 years later because he has to relocate offshore for work (potong sim right?) 1) With this piece of the puzzle in, here are my views – Aside from the day-to-day price fluctuations, and assuming no severe Black Swan events (like China kickstarts an open war with Taiwan or C0vid 20 outbreak), we could be on solid footing for the broad stock markets to NOT fall further than what we experienced in 2022. I want to refrain from saying, ‘we could be on solid footing for broad stock markets recovery’ because the reality is this: S&P500 and Nasdaq (bellwether for Europe and Asia markets) being up 20%+ so far is driven by a few huge mega-cap counters related to Generative AI like Chat GPT – • Apple (+46%) • Microsoft (+40%) • Alphabet (+39%) • Meta (+118%) • Amazon (+48%) • Tesla (+140%) “Why these?” you may wonder. Because TINA (There is No Alternative) to invest in, considering even High Grade bonds valuations are down double digit last year, the worst in 40 years Excluding these few major counters from the benchmark though, US market had been FLAT so far in 2023. Going forward, businesses expect weaker earnings for the rest of the year, with a (possibly mild) recession in the tow. Weak earnings = stock markets would stay flat. 2) Consider also these: 1. ‘Excess inflation’ due to good shortage caused by pandemic, worsened by Ukraine-Russia war is largely resolved. What’s prevalent now is ‘sellers’ inflation’ – price hike by dominant companies who have pricing power 2. the Lag Effect as a result of US Fed rapid rate hike for the past 1 year is now being felt 3. tech sector fell first, and fell the hardest last year. Year-to-date (YTD), it is recovering the fastest comparatively to other sectors this year, although not yet breakeven with the % down last year 3) What’s Next Keep this in mind – any moves to allocate back into the equity market NOW is setting up the stage for the eventual market rebound in full force when the Fed and most of global central bankers cut interest rate again. Do NOT expect that to happen though in 2H 2023. Realistically – earliest, next year. After all, European central bank is still in the rate hike cycle, so is Australia and New Zealand (just fell in technical recesssion)

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