As Moody’s Downgrade, Bostic Comments Weigh on Stocks, We're Eyeing This Holding
Here’s where we would scoop up more of this Pro Portfolio position.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
In Friday’s Weekly Roundup we discussed that based on relative strength index (RSI) levels, the S&P 500 was nearing overbought status while the Nasdaq Composite had crossed into that. At the same time, the Fear & Greed Index was nearing “Extreme Greed” even though both market indexes posted significant moves off their early April lows.
The message we were conveying is that it would not take much to see some short-term profit-taking by those whose time horizons were far shorter than ours at TheStreet Pro Portfolio. Even though Moody’s downgrade of the U.S. credit rating comes well after similar moves by other credit rating agencies, the upward move in Treasury yields is weighing on the market Monday morning. For context, S&P Global downgraded the U.S. credit rating back in 2011 and Fitch did the same in 2023.
We’re not going to downplay the reasons behind Moody’s downgrade or the impact to borrowing costs it is likely to trigger, at least in the near-term, but our thinking is that this is more headline risk ahead of the Trump administration looking to its tax and spending cuts package. Obviously, we will continue to watch progress on this front in Washington as well as trade deal and tariff developments.
Also in Friday’s Weekly Roundup we noted another wave of Fed speakers making the rounds this week. In addition to reiterating his view the Fed is likely to deliver one rate cut this year, Atlanta Fed President Raphael Bostic hinted that cut was likely to come well into the second half of 2025. Bostic conceded there is a lot of “good negotiations” going on about tariffs and budgets, but the Fed will want to see how things sort out before making a policy move, suggesting that could take 3-6 months. Those comments fly in the face of the three expected rate cuts by the market captured in the CME FedWatch Tool Monday morning.
As we assess these developments, the collective toll could be something that removes some of the froth from the market. However, given the market’s mood, a trade deal announcement, progress on the Ukraine-Russia war, or another positive development could also lead the market deeper into overbought territory.
Seeing these potential scenarios, we’ll sit on our hands this morning, but keep a close eye on stocks such as Waste Management WM that offer have a nice defensive and inelastic core business. WM is one of the Pro Portfolio’s smaller positions, and one we would like to add to at the right price. For us, that’s closer to $222 but if market conditions led WM to re-test the 200-day moving average at $216.44, we would likely take a bigger sized bite of the shares.
