Weekend Post--Is Restrictive Territory Restrictive Enough?
How long before the Fed will signal a rate cut if inflation seems to be rising again?
Work is still quite busy, moving in the next 2 weeks and had my birthday recently (it’s today and I’m still going work on this to get it out for the weekend), so I will always post a weekend post—once I return to more frequent posts, I will gift subs plenty of extra months since I’ve been busy and unable to post more regularly. Thanks for your support.
Recap
✅ As I warned when the market is 50%+ bullish, it’s come to be cautious. As you can see in the flows below, March 12th CPI day was quite the spike and a short term pullback looks to be happening; however, it won’t be a crazy sell off—but likely bullish market rotation.
We’re likely to see rotation back to Apple (based on flows) and that might hold up the market while the rotation away from recent winners happens.
New 52-Week Highs vs New 52-Week Lows
NYSE New 52-Week Highs: 106 vs New 52-Week Lows: 53
Nasdaq New 52-Week Highs: 89 vs New 52-Week Lows: 140
Nasdaq finally sees more lows than highs
McClellan Oscillator continues red
New Highs - New Lows continue trending down
*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.
Past Week
The market stays at Greed: 70
This is the big question—are we in restrictive enough territory to get inflation back down to 2.0%?
GDP growth at 2.0% or higher is healthy but does the Fed need to slow growth further?
Supply has helped a lot for the disinflation narrative
The Cautious Outlook
Inflation expectations are the holy grail and they cannot get unanchored—the Fed will respond by taking us further into more restrictive territory if inflation expectations do not reverse course back down towards 2.0%
Supercore is what the Fed cares most about and it is not anywhere close to 2.0%
Let’s hope Joseph is right
It’s not a warning sign yet but something to keep an eye on if U-6 continues trending higher
Forecast
March 12’s CPI day was very interesting if you look at the flows. Short term caution is warranted; however, we’re still on a Golden Path because economic growth is strong (and why inflation reports have surged again). I still do not see a scenario where inflation would re-ignite in a serious way, especially when energy and supply continues to improve.
A simple way to look at this: we’d be in a lot more trouble if the CPI came in negative. You want inflation (it means positive economic activity and growth), just not too much of it.
Keep reading with a 7-day free trial
Subscribe to Best of Twitter/Threads, Analysis & Forecasts to keep reading this post and get 7 days of free access to the full post archives.