Weekly Update: Fed Hikes Rates Again
Good evening, and welcome to this week’s edition of Stealth Trades!
After four ugly days to start the week, stocks ripped higher on Friday to finish the week roughly unchanged.
The market digested another 0.25% interest rate hike announced at Wednesday’s Fed meeting. This was followed by an hour of back-and-forth nonsensical rambling by Fed Chairman Jerome Powell who refused to say they would be raising, lowering, or pausing interest rates in the second half of the year.
If you haven’t been following, Powell is the same clown who printed more money than anyone in history to prop up markets after COVID.
The enormous infusion of funny money into the economy caused rapid inflation. Powell said it was transitory (fancy word for temporary).
It wasn’t.
Now he is embarrassed, along with the President and all the other politicians who do not know how the economy works and believed they could print and spend their way out of the problem.
My guess is that rates have now peaked. The CPI and PPI reports scheduled over the coming months will likely confirm that inflation is trending lower and not require additional interest rate hikes.
I expect to see the Fed begin cutting rates next year, possibly at the tail end of 2023. So, if you’re looking to refinance your mortgage, mid-2025 is probably going to be your best chance.
With the Fed announcement out of the way, we can return our focus to individual stocks.
We are right in the middle of earnings season, and so far, the numbers have been pretty strong. Most of the big names beat expectations and made nice advances.
Some have failed to impress, however.
When that happens, and a company reports sales and earnings below analyst expectations, a stock can fall dramatically.
Even if last quarter’s numbers were good, executives will sometimes lower guidance and suggest lower sales and earnings going forward. This can cause an even bigger dip in the stock price.
Because of the danger of holding stocks through earnings announcements, I try to only do it if I have a significant gain on the stock already. I will risk my profits, but not my capital.
Instead, I will wait until after the earnings report to initiate a position.
Below are three of my favorite stocks reporting earnings in the next two weeks:
Hims & Hers (HIMS)
I have talked about this stock before. In fact, I recommended it in the April 14 weekly update, and the stock has risen another 23% since then.
HIMS is currently consolidating at all-time highs before its earnings announcement.
They are scheduled to report after market close on Monday, 5/9.
If I were a gambler, my bet would be that they beat and surge higher. Personally, I’m not willing to risk it which is why I recently sold my position in HIMS.
But if Monday’s numbers are good, I will consider buying back in on Tuesday morning.
Celsius Holdings (CELH)
The energy drink maker has always been a mover. The stock trends well and routinely makes 50% moves in a few weeks or months.
The stock was a big leader in 2022 and actually rose more than 100% in the middle of the bear market.
It has since pulled back, but it is again showing a lot of strength.
Shares ripped through the 200-day moving average to reclaim their long-term uptrend on heavy buying volume. And after three inside days, it pushed to new highs on Friday.
CELH reports earnings Tuesday after the close. All signs point to them beating expectations, but I still wouldn’t risk the farm on it.
On Holdings (ONON)
On Holdings, the maker of OnCloud tennis shoes, is one of the hottest stocks in the market right now.
It went public in 2021, just in time to get hammered in the bull market.
But shares have come back with a vengeance.
ONON has already doubled this year and is making new all-time highs as I write this update.
Notice the textbook consolidation pattern followed by a pocket pivot breakout through resistance. This is healthy action and exactly what we expect from stocks under institutional accumulation.
We have a little time before this one reports earnings. The announcement is scheduled for a week from Tuesday on May 16th before market open. If I had a profit cushion of at least 10%, I’d probably hold this one through the report.
Best wishes for your trading,
Ross Givens