Chris Versace: Good morning, Action Alerts PLUS members. It's Friday, September 23. To say the last few days have been challenging for the markets, candidly, is something of an understatement. Following the Fed's latest meeting and updated economic forecast, the market is in the grips of growing concerns the Fed is likely to overreach with its inflation-fighting efforts, sabotaging the economy in the process.

No surprise, given Fed Chair Powell's comments that some pain is likely to be felt by consumers and businesses alike. As we've been sharing with members, the big rethink on the speed of the economy and forward earnings is now underway. Adding to that, this morning, we had the September Flash PMIs for the Eurozone and the UK that signaled ongoing contraction is occurring, and inflationary pressures remain.

For the US, we also received the Flash Composite PMI for September. And it too, signaled the third consecutive month of outfit declines. Those contracting figures in our view, are likely to add to the concerns I mentioned about the Fed and the economy, and raise questions about earnings expectations for the second half of 2022, as well as 2023.

At the same time, the upward move we're seeing in interest rates is leading to renewed questions on stock valuations and multiples. Add in renewed dollar headwinds, and we're likely in for a challenging September quarter earnings season that will lead to further downward revisions for earnings expectations.

Now, let's put all of that together. And the wind up is, we are seeing folks around Wall Street reduce their targets for the S&P 500. For example, Goldman Sachs now sees 3,600. Bank of America on the other hand, is calling for something between 3,300 and 3,500.

But this uncertainty that we're seeing about the direction of the market, the speed of the economy, earnings prospects, and targets for the S&P 500 is leading to falling investor sentiment, prompting stock and bond outflows with investors, no surprise, piling into cash, something we did during the summer months. That lack of buyers however, means there isn't going to be a lot of market support in the near term.

On this week's podcast, Bob explained why the markets need to retest the June lows near 3,640. And increasingly, that looks like it could happen. We've been preparing the portfolio for this.

And as we transition from the Fed's September monetary policy meeting and fallout, to the September quarter earnings season, one that's in our view, likely to be a show-me story, we, with the AAP portfolio, will remain on the cautious path. That means keeping plenty of cash on hand, utilizing the inverse ETFs we have in the portfolio, and we're not going to buy stocks simply to say that we're buying them. Rather, we're inclined to wait for compelling risk-to-reward opportunities to emerge. In the meantime, we'll continue to build our shopping list for both existing positions, as well as new ones.

Now, last night, we also saw earnings from Costco, which largely came in as expected. However, the stock is lower after the retailer warned about profit margin pressures. Heading into that report, we shared with members that if it underwhelmed expectations and investors, we would take a beat and look to add to the portfolio's position in the coming days. That plan remains in place, especially as the company targets adding more warehouse locations in the coming 12 months than it did in the last 12 months. That tells us the all-important membership fee income is poised to grow further, and it also sets the company up to continue to win additional consumer wallet share.

Stepping back, Costco's comments about inflation and margins are ones that we're likely to see echoed during the upcoming earnings season. Again, another reason to think it will be a challenging one, and another reason for us to remain cautious with the portfolio. That's today's rundown. Thanks for joining us. We'll see you next week.