To Heck With the Downgrade – Just Be Ready to Buy

So, what’s your credit score?

No, that’s not a pickup line at a bar (I haven’t been part of that scene for a long time).

It’s a factor that comes into play almost everywhere else.

Your credit score impacts you and your money in a big, big way: What credit cards you can get … the interest rates you pay, how much car or house you can afford and sometimes (albeit indirectly) what jobs you can get.

You can’t ignore your credit score.

And, this week, the “credit score” of America was cut by a ratings agency.

Credit-rater Fitch dropped its rating on U.S. federal debt from a perfect AAA to AA+.

That’s not a big downgrade, I grant you.

But it’s the first in 12 years. And when the most-creditworthy nation in the world gets dinged, everyone else feels the chill.

Investors reacted as you would expect – by shooting first and aiming later. That never ends well, and I don’t expect this time will be any different.

Personally, I’m not worried about the downgrade; and here’s why you shouldn’t be either. In fact, it perfectly follows the script I’ve been working from all year. And it’s an opportunity to get yourself ready for the next Big Lift.

Stay Focused on the Data

I get that a U.S. downgrade will generate headlines… scary ones at that.

Dramatic headlines provoke emotional responses. And emotional responses almost never turn out well when it comes to investing.

That was the case 12 years ago, when Standard & Poor’s downgraded U.S. debt. Stocks were already heading down when the news hit, and they fell sharply the first couple of trading days afterwards.

However, the S&P 500 recovered in days, and though volatility continued, the index had bounced 12% off its lows by the end of the year and was back to pre-downgrade levels. If you cashed out – and missed out – you’d have regretted it quickly.

We didn’t sell off anywhere near as severely as 2011… and I expect the market to be a lot higher by the end of this year.

In fact, this has been my outlook for most of 2023. My data clearly showed inflation dropping, and I knew the Fed would be able to stop raising rates before the end of the year.

Fitch’s downgrade makes that even more likely because it acts as a phantom rate hike.

To see why, go back to our credit-score analogy:

As consumers, if we have a lower credit score and are therefore considered a bigger risk, what does the lender or credit-card company do? Charge us a higher interest rate.

The same applies to government debt, and the market has already started to lift rates in the wake of the downgrade.

The yield on 10-year Treasury bonds nearly hit 4.2% today, which is the high of 2023 and closing in on the 52-week high set last October.

I thought the Fed was already done raising rates before this latest news. Now I really think the central bank is done.

As that becomes clearer in the language and the policy meetings, look for cash to start coming back into stocks. There are record levels of cash on the sidelines (in money-market accounts) that could come into play to help fuel this next Big Lift. And… we may get to talking about rate cuts sooner than we would have otherwise.

The other reason I expect a big finish to the year is because we almost always get it. The fourth quarter is by far the strongest of the year, following the often-volatile months of August and September. Well, this latest headline kicked up the volatility right on cue.

And it won’t be enough to rain on the fourth-quarter frenzy. I think this could be an exceptional fourth quarter as seasonal patterns combine with powerful catalysts from the end of rate hikes and the taming of inflation, all while consumers continue to spend and companies continue to make money.

So, don’t worry about the debt downgrade. The U.S. government has never defaulted on debt, and it’s not going to start now.

Instead, stay focused on what the data tells us:

  • Inflation is way down, to the point where ethe Fed should be done raising rates, and may even talk about cuts.
  • Companies are beating sales and earnings expectations.
  • My Quantum Edge system continues to detect far more buying than selling.
  • Stocks are in a big bull run going back to last October.
  • We’re about to hit the strongest time of the year for stocks.

This latest volatility is your chance to get ready for the big finish.

Your Gameplan for a Volatile Summer Market

The Fitch downgrade jumpstarted volatility, but it didn’t change our strategy in my Quantum Edge services.

We are planning to lock in profits – some of which surged to 22%, 29%, 45%, and even 59% – and be ready to go shopping for outstanding bargains … if and when they appear.

You might want to consider the same.

Last week, my proprietary Big Money Index (BMI) flashed “overbought” for stocks. That sounds bad, but it’s not. It does, however, mean that a pullback is increasingly likely.

Stocks can stay overbought longer than you might think, and they can keep going up all the while. That’s why the more important signal is when stocks start to fall out of the overbought zone.

It’s worth waiting for confirmation before making any moves, and that’s the time to consider locking in profits or unloading some laggards.

That reduces your risk, and it raises cash to scoop up what I think will be some outstanding buying opportunities in the highest-quality stocks in the market.

I fully expect stocks with outstanding Quantum Scores to pull back to cheaper prices. Investors often sell the biggest winners first, and ironically, that can make them some of the best buying opportunities for the rest of us.

Those are the stocks to watch for: best-in-class fundamentals, strong technicals, and Big Money inflows.

And if you invest at mouth-watering prices, you can expect to watch your profits grow even bigger as stocks surge into the end of the year.

Talk soon,

Jason Bodner’s Power Trends