Hey There Income Hunter,
The February consumer credit report from the Fed showed the highest increase for a single quarter in history.
Americans went on a credit-card fueled spending spree in the fourth quarter of 20221, as consumer credit exploded by a whopping $41.8 billion – more than double the expected $18.1 billion print.
Notice in the chart below how high consumer credit has been really since the financial crisis in 2008 – yet it went higher during the government’s Covid spending spree.
The consumer is the main concern as the Fed begins its $95 billion quantitative tightening and potential .50% rate hikes in May and June.
Today, we’ll take a look at the impact on you and other consumers and – plus trades to profit from it …
Consumer Debt Up, Savings Down
The Fed has continued to say how strong the economy is in hopes that consumer spending will keep growth alive, but not only has their spending been supported by increased debt …
Personal savings, as you can see in the Fed chart below, has fallen below pre-covid levels.
The US in general holds far too much debt heading into the proposed hiking schedule. These figures prove that rising inflation costs are crushing consumers who are forced to pay for their essential items with credit cards.
Sell Rips in Consumer Discretionary Stocks
The consumer will not help support the valuations in many consumer discretionary stocks in the months ahead.
SPDR Consumer Discretionary Sector ETF (XLY) is a liquid ETF that offers diversified exposure to consumer stocks.
This sector is one of the worst performing sectors in a slow growth, high inflation environment.
Play a bearish strategy on a break below the 50-day moving average on high volume with a stop on a close back above it.
(Questions about that? Email me or drop a comment below.)
Single Consumer Stocks to Short
Macy’s (Ticker: M) broke below the 200 DMA and is retesting it. Put a bearish strategy on the retest of the 200 DMA with a stop on a close back above.
Others to consider:
Marriott International (Ticker: MAR): Sell on a retest of the 50 DMA with a stop on a close above.
Invitational Homes Inc. (Ticker: INVH): Sell on a break below the 50 DMA on good volume with a stop on a close back above.
Bring It Home
Consumer spending is the most critical component to a healthy strong economy. The Fed focuses solely on the job market because a strong job market is one of their mandates …
The central bank’s other focus is inflation – and they already dropped the ball there because they waited too long to do anything.
The Fed really only has two choices ..
- Fight inflation the way Fed chair Volker did in the 70’s and force the economy into a deep recession. Not possible today because it would crush the financial system worse then they did in 2008.
- Let inflation go and hope the economy holds on. This would lead to hyperinflation and a collapse in the dollar.
What they will do is attempt to crash the stock market with hawkish talk and initiate their tightening policy at the May 4 FOMC meeting … Once the S&P 500 index (Ticker: SPX) is down 20-30%, they will have the cover to go back to printing money and blame Covid, Russia, and inflation for the downturn…
What you can do is subscribe to Power Income Trader (PIT) and join our community of traders. My PIT system aggregates Fed internals so we know where the smart money is flowing … Then we front run the Fed and get out in front of the flows the most efficient low risk.high reward trades.
We stacked another nice 38% profit Friday by closing out a put spread on the iShares MSCI French Stock Market ETF (Ticker: EWQ). We trade all markets that provide fundamental and technical patterns that allow you to maximize your returns, so that you can …
Live and Trade With Passion My Friend,
Griff