Can the Stock Market Just Keep Going Up?

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Market News and Short-Term Predictions

If you are wondering what the magnificent 7 are, they are a collection of the following stocks: Apple, Alphabet, Tesla, Amazon, Microsoft, Meta, and Nvidia. They have returned 50.3% since the market bottomed on Oct. 12, 2022, and they’ve returned 70.9% year to date through June 6.

They are all included in the S&P 500 and account for a large portion of the index’s 21.1% and 12.4% returns over those respective periods.

By contrast, the S&P SmallCap 600, which includes none of the seven, has returned just 3.6% this year and 10.6% since October 2022.

With Jerome Powell's latest remarks at the June FOMC meeting on pausing rates, we have seen the market jump even more and led by the magnificent 7. We are at technical indicators we haven't seen in a long time with the daily RSI at 77! So the market is definitely hot right now, but who's to say it can't get even hotter in the short term?

The Fed also commented on CPI data that came out this week (which came in at expectations of 4% YoY headline inflation and Core CPI 0.4% MoM) and the fact that they are still monitoring sticky inflation. They also expect the unemployment rate to rise to a range of 4-4.1% this year. They did suggest 2 more rate hikes are possible on the table for the remainder of the year.

One market that doesn't completely buy a soft landing is the bond market as the 2/10 year treasury spread has gotten wider and approaching levels not seen since March of this year. That inversion is usually a recession indicator as the bond market is thinking higher rates for longer will eventually break something.

I have to think the market can't just go up in a straight line, but AI and its growth potential seem to be covering up a lot of economic concerns as the top companies that drive the overall market returns are getting the benefit of that AI growth.

So I see two paths. Either the fed hits a softer landing and we rotate into a growth phase. Or we have a harder landing where high rates break something in the economy which may cause a short-term larger pullback.

Lessons to Be Learned

Regardless of any bearish indicators, the FOMO is real. Just a reminder to not let emotions impact your investing decisions. With the past couple of weeks looking like a straight line up, some traders/investors have done very well.

Even I find myself saying "Sure I'm at all-time highs in the portfolio, but should I yolo calls into TSLA and NVDA!?" I'm not going to do that :) but you get where I'm coming from.

The past couple of weeks feels like the culmination of money flowing back into the market due to larger funds being under positioned long and a short squeeze across the board. Pair that with IPOs like CAVA coming out hot and going up 100% in a day. The risk-on environment is back, but I think caution is the right approach.

I think we are in the beginning of a crazed period, but you'll notice I'm not adding too much more to the larger tech names as the valuation multiples are now a lot higher and not as attractive as they used to be. Still great companies, but looking to hold and trim vs. loading the boat. I'm putting my money in other areas that I feel may play catch up or I see as a larger "discount". The sector I'm looking at adding to on the chance we do get a soft landing is industrials.

Options Trading Portfolio

Closing Trades

I ended up closing two winning trades and two losing trades for a net loss of $219. Closed out a short SPLG put and a winning scalp trade from FOMC day. The iron condors that I put on over the past few weeks have been getting hammered by this last up move in SPY from $420 to $440 in such a short period. So I closed out two of those for losses in order to manage risk and reduce short delta. You win some and lose some, as that is the name of the trading game.

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