Ridiculing financial television is like shooting fish in a barrel. No, let me rephrase that. It’s like shooting the barrel.

This morning, while drinking coffee and writing this article, I heard these statements emanate from a discussion on CNBC: “It’s a stock picker’s market,” and “The easy money has been made.”

I almost did a spit take. Meaningless phrases. It’s like saying: “Salt is salty.” Let’s look at what’s driving the markets and how you should position your portfolio, sans cliches.

The S&P 500 and NASDAQ are in bull territory, but investors are jittery due to elevated inflation, higher interest rates, economic deceleration, and geopolitical turmoil.

Stocks remain vulnerable to a sell-off, especially if, say, Russian President Vladimir Putin does something desperate. Since the aborted insurgency of Wagner warlord Yevgeny Prigozhin, Putin has been behaving like a cornered rat. It just so happens that Putin controls the world’s largest stockpile of nuclear weapons.

The good news is, several economic reports this week have exceeded expectations and buoyed stocks. We’ve gotten robust figures for May’s headline durable goods orders, consumer confidence, and new home sales.

The most encouraging news came from the housing sector. New home sales soared in May, as buyers considered new construction as an alternative to the chronically low inventory of existing homes for sale.

Sales of newly constructed homes were up 12.2% in May from April, and 20% from 12 months ago, according to a joint report released Tuesday by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau (see infographic and chart).

Housing is a barometer for the overall economy. Indeed, cyclical sectors are in the ascendancy, reflecting broader participation in the equity markets as well as economic optimism. You should increase your exposure to sectors that appear set for a rebound, such as industrials, materials, and construction.

Asian markets have rallied in recent days, on the news that China is on track to achieve its 2023 gross domestic product (GDP) growth target of 5%. What’s more, the country’s second-quarter GDP growth is expected to surpass Q1’s growth rate of 4.5%.

Previously downbeat forecasts for China’s growth have been weighing on crude oil prices. However, if the world’s second-largest economy manages to beat its growth targets, we’ll see oil prices and other commodities such as copper move higher.

The FOMC looms large…

Investors are eyeing the Federal Reserve’s next meeting in July. If the Fed pauses again, it will likely provide the catalyst for the stock market’s next leg up.

The main U.S. stock market indices closed mixed on Wednesday, as follows:

• DJIA: -0.22%
• S&P 500: -0.04%
• NASDAQ: +0.27%
• Russell 2000: +0.47%

U.S. stocks are likely to remain range bound until the next Fed meeting is out of the way. After initiating interest rate hikes in March 2022, the policy-making Federal Open Market Committee (FOMC) decided to pause these hikes at its June meeting, maintaining the fed funds target range at 5.00% to 5.25%.

Although inflation has decreased significantly since its peak in June 2022, it still remains well above the Fed’s long-term target of 2%.

Federal Reserve Chair Jerome Powell has indicated that more work needs to be done in fighting inflation and has suggested that further hikes are in the cards, but the central bank is essentially taking a wait-and-see approach. Regardless, the Fed is nearing the end of its tightening cycle and this fact has helped keep this year’s rally alive.

We’ve gotten strong economic reports lately, but every silver lining comes with a dark cloud. This positive data could exert upward pressure on prices, especially in the housing sector, potentially nudging the Fed towards additional rate hikes.

WATCH THIS VIDEO: The Fed and The Wisdom of Inaction

Wall Street oddsmakers currently place a 75% probability of a 25-basis point hike at the Fed’s July 26 meeting, with rate cuts no longer on the table for 2023. The deleterious effects of restrictive monetary conditions already are manifest throughout the economy, notably in manufacturing and the labor market.

Large-cap stocks, especially those involved in artificial intelligence, continue to lead the way in the U.S. market this year. However, small caps are catching up, which is a favorable harbinger because the smaller fry tend to perform better as economic conditions improve.

The mega-cap technology stars comprise a disproportionate share of the rally year to date, but we’re starting to see more balance, as other sectors and asset classes participate.

I just described bullish conditions (without the bull). However, if you’re still nervous about some of the risks I’ve highlighted, I suggest you consider the advice of my colleague, Jim Pearce.

Jim Pearce is chief investment strategist of our premium service Mayhem Trader. He has spent the past year perfecting a powerful indicator that’s designed to make money in a hostile market.

Jim has a proven knack for reaping profits from Wall Street mayhem. To learn more, click here for his latest video presentation.

John Persinos is the editorial director of Investing Daily.

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