We had a nice three-day rally to end the month of July after the Federal Reserve raised interest rates by 75 basis points again last Wednesday. July stanched some of the bleeding from a dismal first half of the year for investors. Indeed, the S&P 500 had its best monthly gain since November 2020.
Markets rallied on hopes that further interest-rate hikes will be lower incrementally, starting with September. That may turn out to be so, but we are far from putting the inflation genie back in the bottle. Even with two straight 75 bps hikes, the fed funds rate is running at less than one-third the rate of current inflation levels.
I would love for the positive action in July to be part of a sustained rebound. Unfortunately, I think we are much more likely to get another leg down in the coming months as I see little chances of a soft landing scenario playing out.
Both first-quarter and second-quarter GDP have now contracted and that was before these two recent interest rate bumps took full effect. Therefore, I remain cautious and am maintaining a higher-than-usual allocation to cash in my portfolio.
That does not mean I am completely sitting on my hands, however. Here are two trading ideas as we begin trading here in August.
I recently boosted my holdings in a small manufacturer and SaaS provider, CalAmp Corp. (CAMP) . The company has posted two disappointing quarters in a row largely as result of "component shortages" as well as other global supply-chain challenges. CalAmp was particularly impacted by the lockdowns earlier in the year across much of China, which have now largely lifted.
CalAmp is making good progress converting customers to recurring subscription services and several insiders have scarfed up over $2 million in new shares over the past month. These are good signs the stock is likely oversold at this point.
I also have The St. Joe Company (JOE) on my potential shopping list. I took some from profits on JOE earlier in the year when the shares broached the $60 level.
St. Joe has huge land holdings in northwest Florida. The stock has been impacted by the slowdown in the housing market. However, the migration to Florida from places like New Jersey, Chicago, and New York has hardly slowed one iota based on recent United Van Lines and U-Haul data. The number of net Californians moving to the Sunshine State has also increased more than ten-fold over the past seven years, based on IRS data.
My view is that every time New York City has another high-profile shooting or subway mugging, another five to 10 New Yorkers make the decision to become Floridians. The St. Joe Company is a nice proxy for that migration to continue despite higher mortgage rates.
JOE stock currently trades in the low $40s, and I will add to my holdings in this land play via covered call orders if the shares get below $40. That's something that I believe is likely should equities have another leg down after a very solid July -- a scenario I view as probable.
(Please note that due to factors including low market capitalization and/or insufficient public float, we consider CAMP to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.)
