A few days ago the stock market participants were again panicking over something we all know and are aware of – interest rates. We all know inflation is easing and continues, so we all know that the FED will, at some point, start cutting the rates, and it doesn’t matter whether it will begin in March or July. We all know that the US economy is booming (despite many naysayers who believe we are doomed to crash), and we all know the labor market is still strong. Yet, at any time, the media tell us that the FED may “reconsider” the market panics. But is it panicking? The news outlets needed to tell us what was going on. It is their game, but no matter what theory they are making, the truth is that this market is overbought, and everyone is in FOMO out there. Any selling is just a pause in the rally. A dip that many jump in to buy.
 

What’s the outlook for the stock market?

 
The current stock market sentiment as of early February 2024 appears cautiously optimistic, with mixed signals from various economic indicators and corporate earnings reports. We had a mixed bag of earnings from the large companies. Some were disappointed, and some sparked a new rally and more craziness. For example, Google (GOOGL) was disappointed despite the earnings beat, while Meta (META) had a sunny day. And it even started paying a dividend! What a deal! The stock skyrocketed by 20%! That is quite unusual. Lately, we used to see drops of 10-20% rather than rallies.

Nevertheless, the stock market score is 82 (on a scale of 0-100) for the next week, which indicates optimism and buying. The stock market is overbought, but the sentiment is strong and bullish, and thus, I expect the rally to continue and any dip to be bought.

 

 

Here’s a summary of the latest trends and expectations:

 
Economic Data and Corporate Earnings: Recent reports show strong US nonfarm payroll growth for January, significantly surpassing economists’ expectations, which suggests robust demand for employees. However, there are signs of softening employment ahead, with some high-profile job cuts and a slow matching process between available skills and job requirements. Despite these challenges, optimism is warranted as many companies adjust their workforces to more normal levels post-pandemic disruptions.

 
Interest Rate Expectations: The Federal Reserve’s stance has influenced market expectations, with recent signals dampening hopes for a rate cut as soon as March. However, the market anticipates potential rate cuts later in the year, influenced by corporate earnings reports, employment data, consumer spending, and inflation figures.
 

Market Performance: The stock market has shown resilience, with indexes like the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite posting gains. This performance reflects optimism about corporate earnings and economic data despite concerns about inflation and interest rate hikes. There’s a cautious stance regarding short-term volatility due to geopolitical tensions and concerns about the banking sector, particularly with regional banks.
 

Investors are advised to focus on sectors that may gain more attention in the coming months, such as healthcare, financials, consumer staples, and industrials, while remaining aware of the potential for share price volatility due to ongoing uncertainties.

This mixed start and cautious optimism suggest a market balancing between strong economic indicators and uncertainties about inflation, interest rates, and geopolitical tensions. We expect the stock market will continue going up next week, and any dip will be bought promptly.
 

What I am doing in this market?

 
I want to be a contrarian, so when everyone is suddenly bullish, I want to be bearish or neutral. But that doesn’t mean, I am going to sell my shares or short the market. Far from it. That can be a costly mistake. The market can be irrational and going up for years (or at least months) before we see another serious pullback or even a bear market. Timing the market is not a winner’s game.

So in this market, I am saving cash. I save cash in the ICSH and SGOV funds for rainy days. In 2020 when the markets tanked due to the Covid pandemic, I survived the decline but I didn’t have enough cash to buy undervalued stocks. I wanted to buy NVDA, MSFT, GOOGL, COST, NFLX, and may other stocks that everyone was selling, because, well, the world was ending. But I didn’t have enough cash. When I bought, I got hit with a margin call and I had to sell it again. I told myself: “I must create cash reserves for this to never happen again.”

Did I save cash reserves? Of course not.

In 2021, when the markets rallied like crazy, I refused to accept that we could go into another bear market right after the Covid one. Impossible! Well, it was possible and it did happen. And once again, I had no cash reserves. I managed to increase my stocks positions by 34% in 2022 but it was a stretch and I had no cash left. If the market gets hit by another serious pullback, I will have no cash again, I will get hit by a margin call and will be forced to sell. And that is what I definitely do not want!

So, in this market, I will be saving cash. All proceeds from options trading will go to ICSH reserves. All old SPX trades that, hopefully, end this next week (or thereafter) I will save all released buying power into SGOV. All dividends will be reinvested into the dividend stocks.