Pivot chatter has picked up following signs that inflation is slowing its rapid ascent, which is a driving force behind the S&P 500’s 11.5% rally since mid-October.<\/p>\n
The market gained over 3% in just one day following Powell’s message.<\/p>\n
But investor optimism might be misplaced.<\/p>\n
So, before you celebrate, first consider what a pivot actually means for the economy and stocks…<\/p>\n
Pivots Have Been Bad for Stocks<\/h2>\n
The term “pivot” describes the Fed’s transition to easier monetary policy. That’s marked by a slowing pace of rate hikes that gives way to outright cuts.<\/p>\n
And in a year when rate increases are bludgeoning stocks, you’d think a pivot seems like a welcome change.<\/p>\n
But pivots don’t always end well…<\/p>\n
It’s actually been quite the opposite when you look at the last two major bear markets with the 2000 “dot-com” bust and 2008\/2009 financial crisis.<\/p>\n
The chart below shows the overnight federal funds rate (orange line) and the S&P 500 (blue line). The Fed pivot took place before<\/em> stocks took their biggest plunge (grey dotted line).<\/p>\n Take a look…<\/p>\n <\/p>\n That’s because a pivot signals tough times ahead for the economy, and thus corporate profits.<\/p>\n This may seem counterintuitive… But to understand the negative foreshadowing, let’s see what drives a pivot.<\/p>\n <\/p>\n Free Trading Resources<\/strong><\/p>\n Have you checked out Jeff’s free trading resources on his website? It contains a selection of special reports, training videos, and a full trading glossary to help kickstart your trading career \u2013 at zero cost to you. Just click here<\/a> to check it out.<\/p>\n<\/p><\/div>\n<\/div>\n <\/p>\n The Fed is tasked with two jobs: keep prices stable and people employed.<\/p>\n Achieving both requires a balancing act with interest rates to keep the economy at the right speed.<\/p>\n But unfortunately, the Fed tends to push rates too far in either direction. Those extreme moves create boom-and-bust cycles for the economy… Like slashing overnight rates to zero in the wake of the pandemic.<\/p>\n Now we’ve seen four<\/em> consecutive 0.75% hikes – a truly unprecedented rate.<\/p>\n And pivoting is historically a bad signal because it follows the stark realization by Fed officials that they’ve pushed things too far and took the economy to the brink.<\/p>\n But by then, it’s too late.<\/p>\n Take another look at the federal funds rates in the chart below, this time with recessions shown in the grey shaded areas. Pivots happened before<\/em> the last three recessions hit…<\/p>\n <\/p>\n That means pivoting is a sign the Fed has gone too far in their battle against inflation – and is doing serious damage to the economy…<\/p>\n By the time the Fed realizes it’s making a mistake, it’s already too late for the economy and corporate earnings. And that’s why you see further pressure on stock prices.<\/p>\n So don’t take a Fed pivot as an all-clear signal. Rather, it’s a sign this bear market has room to run.<\/p>\n My colleague Jeff Clark has also shared his analysis on why he thinks this bear market isn’t over<\/a>.<\/p>\n But that hasn’t stopped him from taking advantage of the opportunities bear markets offer<\/a><\/p>\n Just last week, Jeff took advantage of the jump in gold and silver prices to close out five trades for gains as high as 167%… proving that even though the bear isn’t going into hibernation anytime soon, there’s still ways to play the market<\/a>.<\/p>\n If you’d like to receive his next trade alert, you can join his flagship trading advisory right here<\/a>.<\/p>\n Best regards,<\/p>\n Clint Brewer <\/p>\n![\"Image\"](\"https:\/\/cdn.jeffclarktrader.com\/JMU\/images\/202212\/20221207-jmu-01_vfz340.png\")
<\/p>\nPivots Signal a Damaged Economy<\/h2>\n
![\"Image\"](\"https:\/\/cdn.jeffclarktrader.com\/JMU\/images\/202212\/20221207-jmu-02_vfz340.png\")
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