Weekend Analysis: Income Driven Expansion Continues
Inflation is stubborn but won't surge back higher
Recap
✅ SPX 5100 and IWM 200 are key levels coming up and the market closed right below it.
New 52-Week Highs vs New 52-Week Lows
NYSE New 52-Week Highs: 81 vs New 52-Week Lows: 22
Nasdaq New 52-Week Highs: 63 vs New 52-Week Lows: 94
Nasdaq continues to see more new lows than highs
McClellan Oscillator
New Highs - New Lows
Bulls close to 30% usually means buy the dip would get rewarded
We look likely to be headed back towards Neutral
*This my personal blog and is not investment advice—I am not a financial advisor but a random person on the internet who does not have a license in finance or securities. This is my personal Substack which consists of opinions and/or general information. I may or may not have positions in any of the stocks mentioned. Don’t listen to anyone online without evaluating and understanding the risks involved and understand that you are responsible for making your own investment decisions.
Today
The strong income growth supports my eventual target to SPX 5400, although it might be delayed to this pullback, the fundamental fact is that income growth is outpacing inflation—that will continue to drive corporate earnings and stock prices as a result.
So whatever dip we get is a buying opportunity as long as this income-led expansion continues to power economic growth and corporate earnings.
I think because of the March data showing Feb was a blip, the market might rally towards SPX 5400. So the dip we just saw, was the dip to buy.
1.6% GDP came in below the consensus expectations.
However, Atlanta Fed GDPNow estimates 3.9% GDP growth—another data point that would support SPX 5400.
Although inflation is stubborn and not falling back towards 2.0% anytime soon, it still a positive sign of a growing economy and as long as income and productivity growth continues to outpace inflation, the stock market is going to continue to make new ATHs.
Caution would be inflation expectations getting unanchored—right now this is a small rise; however, it would flip the Fed hawkish if the move was more significant. Inflation expectations are the holy grail, it cannot get unanchored.
This is positive for corporate earnings growth
3-month rate needs to slow down on the next report.
Forecast
Based on income and wage growth data outpacing inflation, if this dip continues (or not) we’ll continue towards SPX 5400. The key will be the Fed’s FOMC narrative because delaying rate cuts is not a problem for economic growth (I can’t emphasize this enough, the economy is growing and healthy with where rates currently are so it doesn’t matter if they cut later). The real issue and what 20% of the options market is pricing in, is if the Fed decides to flip back hawkish and re-open the door to talk about considering raising rates.
Just the talk about considering is enough for the market to risk off.
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