The Biggest Driver of the Market  | | Shah Gilani
Chief Investment Strategist | Narratives. Stories. Tales. If you've been following along, you know that I'm convinced narratives are the biggest drivers of stocks and the markets. Not all of them are tradable... and even fewer are investable over the long term. But when they are, they're life-changing fortune-making investments. Think about some of the amazing technological developments over the past few decades. They were stories that turned into long-term narratives... How the internet would bring the world together... or how everyone would want smartphones. Think about how much money was made investing in those narratives... and how much money is STILL being made. And now there's a developing narrative that will take center stage over the next few months. Smart investors will pay attention as this story gains momentum... meaning more and more people will likely trade into the story they see developing. And trading into it will make it self-fulfilling. Pop Quiz Last week I spoke at The Oxford Club's Private Wealth Seminar, held at the beautiful Wequassett Resort & Golf Club in Harwich, Massachusetts. My presentation was titled "Why Narrative Trading Is the Future of Investing and How to Do It." I explained to the packed room how narratives start, how they develop, how they can become self-fulfilling, and how many they'd probably traded or invested in and didn't realize it. Narratives matter. As Daniel Kahneman, noted psychologist, behavioral finance guru, author of Thinking Fast and Slow, and Nobel laureate famously said, "No one ever made a decision because of a number. They need a story." One of the slides I presented to the audience was a bar chart of the Invesco QQQ Trust ETF (QQQ) from the start of 2022 to present day. QQQ is the popular ETF that tracks the Nasdaq 100. 
View larger image I asked attendees if they knew what narrative caused the QQQ to fall throughout 2022. A lot of hands went up. Stocks went down, led the tech sector, because the "inflation isn't transitory" narrative was finally being addressed by the Federal Reserve. The Fed hiked the fed funds rate. The audience knew that narrative. But no one could answer my next question... What happened in November 2022 that put a floor under stocks and set the stage for them to rise in 2023, even though the Fed would raise rates another four times in 2023? The introduction of Open AI's ChatGPT to the public. That was the origin of the AI narrative, and it powered the Magnificent Seven - with the posterchild for AI, Nvidia, leading the way - and therefore the major benchmark indexes to new all-time highs. That's how powerful narratives can be and how they can be played for huge long-term gains. But there are short-term horizon narratives too. Rally On One in particular started brewing and getting press two weeks ago. It's the year-end rally story. Analysts have been leaning into this narrative for two reasons... - Earnings are good. We'll get proof now that Q3 earnings reporting has started in earnest.
- The Fed's likely to cut at least once more this year, if not twice. That one-two punch is enough to propel the S&P 500 to higher highs.
Goldman Sach's prominent chief U.S. equity strategist recently raised his year-end guidance for the S&P 500 to 6,000. And he's not alone. Evercore ISI's Julian Emanuel boosted his year-end price target to 6,000 as well, saying the "AI revolution is in the early innings." Other analysts are raising their targets too, with BMO lifting their year-end target to 6,100. As financial news outlets plaster those stories all over the media landscape, traders will turn into bettors that there's a year-end rally coming. The smartest, best risk-reward way to play that potentially self-fulfilling narrative expanding is by buying a vertical call spread on the S&P 500 by way of the S&P 500 SPDR ETF (SPY). It's what I recommended during my presentation at the Private Wealth Seminar. (Out of fairness to the attendees of the seminar, I won't reveal the specific trade.) If the S&P 500 powers above 6,000, you'd find yourself with a handsome narrative win. Cheers, Shah Want more content like this? | | | | | | 
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