Market outlook: prepare for a pullback

Excellent rally from the beginning of the year 

 So far, we saw positive rally on the stock market. Continuing positive economic growth, positive earnings revisions from the blue chip technology companies supported the rally. In addition, expectations related to the end of fiscal tightening stimulated positive mood of investors. The labor market remains tight; many companies have healthy balance sheets. Re-industrialization is pushing the need for continuing investments in renewable energy, new technologies across many industries. While fundamentals still look strong, many companies trade at historical maximums and market valuations look too high.

Bear case scenario looks more realistic from now

In a mid-term, we foresee that the optimistic scenario looks to be priced-in. Going from here, we expect that the market rally will slow down. We see several bearish factors for the coming weeks:

  • inflation still remains high and should stay for a while, and this will dampen the optimism
  • forecasted earnings growth make be out-of-sync with the realistic economic growth scenario
  • ongoing geopolitical risks will provide more pressure on the market
  • further moves of the central banks in terms of aggressive interest rate cuts are limited
  • high valuations provide profit-taking opportunity 

The strategy 

Here we outline our trading strategy in the above mentioned market circumstances. We recommend to take partial profits in such names like NVDA or SMCI. Now we reduce exposure in some stocks which were undergoing super-rally in the recent months. During the pullbacks cash is your friend. 

In the meantime, we watch some small cap names and big names to re-enter if the economic growth will confirm continuation of its growth trajectories. We have on our watchlist such names as OKTA, DUOL, PATH and MSFT.

Data-sources

Track all markets on TradingView

Our Picks for the next 25 days

During the market pullback we will watch the following picks: OKTA, PATH, MSFT and DUOL.

Our top picks tend to outperform the broad market, because we choose the picks based on our proven back-tested model. In addition, we make deep-dive research into the companies which we highlight as our top picks. Our proprietary ideas we share with our subscribers more in detail.

You may want to subscribe to ourPREMIUM SERVICEto get access to our deep-dive details on top stocks and trading strategies.

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Irina Kainz, MBA, FRM
Irina Kainz, MBA, FRM

Global Investment Professional, Big Data Analyst, Researcher, Writer,
Alumni of Clark University Business School of Management. Holds MBA Degree in Financial Management, Financial Risk Management Charter. Over 18 years of experience in investment banking. Profound knowledge of corporate finance, asset valuation and management. Top skills are quantitative research and analysis; stock picking strategies. Reliable, responsible, have a good track record in the investment community.

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