Last week, we told you that a massive shift is happening in the stock market. And if you recognize and get on the right side of it, you could make fortunes in the stock market in 2023.
We are going to re-highlight this huge shift because over the past week, it has only grown stronger.
Recent data suggests this transformation isn’t just happening. It’s dominating everything on Wall Street and impacting every financial security out there.
And it has to do with a macroeconomic trend reversal.
What Is Driving This Stock Market Shift
Specifically, the macroeconomic trends and themes that drove financial markets in 2022 have shifted 180 degrees in 2023.
- The rising inflation regime of 2022 has become a crashing inflation regime in 2023. The headline inflation rate climbed all the way above 9% in 2022. It has since fallen to 6% in 2023, with the futures market pricing in a collapse to 2% to 3% inflation by the end of summer. Just this past week, we learned prices in the services sector of the U.S. economy are falling at roughly their fastest pace ever right now.
- The too-hot-for-its-own-good economy of early 2022 has become an almost too-cold-for-its-own-good economy in early 2023. The U.S. economy was growing at a 5%-plus clip heading into 2022. It has come into 2023 growing at a sub-1% clip. Just this past week, we learned that the labor market is slowing dramatically while new order activity in the U.S. services sector is currently dropping faster than it did at any point during the dot-com crash or the 2008 financial crisis.
- The huge stimulus of 2022 has become a massive absence of stimulus in 2023. Monthly money supply growth averaged north of 5% in 2022. Right now, money supply growth is running at -2.4%. This week, we learned that bank lending demand is collapsing in the wake of the regional banking crisis, which will further crush money supply going into the summer.
- The increasingly hawkish Fed of 2022 has become an increasingly dovish Fed of 2023. Throughout 2022, the Fed upshifted its rate hikes from none, to 25-basis-point hikes, to 50-basis-point hikes, to 75-basis-point hikes. In 2023, the Fed has downshifted its hikes all the way back down to 25 basis points, with talks of a pause and potential rate cuts in the future. And this week, the Fed Funds Futures Curve plunged, and traders are now predicting four to five rate cuts in 2023.
- Soaring oil, natural gas, and wheat prices of 2022 have become crashing oil, natural gas, and wheat prices in 2023. In early 2022, Bloomberg’s Commodity Price Index spiked more than 30%. In early 2023, that same commodity index has dropped almost 10%. Just this past week, we learned that underlying demand dynamics in the commodity markets are very weak, as even a huge emergency oil production cut from OPEC+ didn’t juice prices much.
Folks, the global economic tide is turning.
All the major inputs of the global economy have shifted 180 degrees in 2023.
And if the inputs are shifting, you’d reasonably expect all the outputs to shift, too.
The Stock Market Is Pivoting 180 Degrees
Indeed, that is exactly what is happening.
- The stock market crash of 2022 has turned into an impressive stock market rally in 2023. The S&P 500 dropped 20% last year. It is up 7% in 2023.
- The tech stock crash of 2022 has turned into a big tech stock rebound in 2023. The Nasdaq dropped more than 30% last year. It’s up more than 20% this year.
- The growth stock collapse of 2022 has turned into a growth stock resurgence in 2023. Cathie Wood’s growth-centric ARK Innovation (ARKK) ETF dropped almost 70% last year. It is up more than 25% this year.
- The Treasury yield spike of 2022 has turned into a Treasury yield crash in 2023. The 10-year Treasury yield rose about 250 basis points last year. It is down about 50 basis points in 2023.
- The crypto crash of 2022 has turned into a new crypto boom cycle in 2023. Bitcoin (BTC-USD) crashed more than 60% in 2022. It is up about 70% in 2023.
Recognizing the Shift
From a financial markets perspective, everything that worked in 2022 is no longer working in 2023. And everything that didn’t work in 2022 is working really well in 2023.
The financial markets are shifting 180 degrees.
This is important to acknowledge because far too often, investors invest by looking in the rear-view mirror. They predicate their investment decisions based on what has worked. They buy what has been going up and sell what has been going down.
Oftentimes, this investment strategy works.
But not when the market is undergoing a massive shift like it is right now.
Investing by looking in the rearview mirror is a recipe for disaster during these shifts. It’s a sure-fire way to lose money in the markets.
Instead, you have to drive gains by looking forward.
You have to recognize the shifts happening in the market right now and take advantage of them.
The Final Word
With respect to today’s environment, you have to recognize that we don’t really have an inflation problem anymore. That was a 2022 problem. In 2023, we have a recession problem.
Oil prices spiked after the Russian invasion of Ukraine, but they’ve actually been crashing ever since. Same with natural gas, wheat, and pretty much every other major commodity.
You have to recognize that stocks aren’t crashing anymore. They crashed in the first half of 2022, went basically flat in the second-half of 2022, and have been rallying in 2023.
Tech and are back in vogue. They got crushed in 2022 but are flying higher with vigor in 2023.
And, importantly, you have to recognize that market shifts this big are not short-term phenomena. They don’t play out in days, weeks, or even months. They play out in quarters and years.
Most investors won’t recognize these shifts. That’s why most investors won’t make great money this year.
But those who do recognize these shifts will give themselves the chance to make huge returns.
Pay attention to price action. Look for stocks that are just now entering breakout mode – not ones that have been in breakout mode and are about to top out or, worse yet, crash.
We’ve developed a quantitative trading system to help us do just that.
It finds stocks that are just now entering technical breakout modes.
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So, if you’re interested in capitalizing on the huge market shift that’s underway on Wall Street right now, plug into some of the fastest-moving trades in the market.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.