Last week, I pointed out that the Citi Inflation Surprise Index was turning up around the world. While one month doesn’t make a trend, what if the Fed is making a different kind of policy error? Instead of over-tightening into a recession, what if the U.S. economy achieves a soft landing or no landing and...
Correlation isn’t causation, but the USD Index has shown a close inverse correlation to the S&P 500. The relationship partly ended when the S&P 500 surged on AI mania. However, small-cap stocks, which are less subject to the enthusiasm over the AI revolution, maintained their inverse correlation. The USD Index is approaching a...
Mid-week market update: The S&P 500 roared out of the gate this morning on a slightly softer than expected CPI print. Robin Brooks observed that super-core CPI (core services ex-housing and healthcare, light blue bars) have been decelerating. Unfortunately for equity bulls, the gains faded over the course of the day. Callie...
In response to the recent financial turmoil, Fed Funds futures is discounting a 25 bps hike at next week's FOMC meeting, followed by a brief peak and rapid rate cuts for the rest of the year. Are those market expectations realistic? How will the Fed navigate between the Scylla of inflation and Charybdis...
On Valentine's Day, the European Central Bank tweeted a poem to underscore its commitment to fighting inflation. The ECB tweet is also indicative of the tight monetary policy undertaken by most major central banks. Only two central banks, the BoJ and the PBoC, are meaningful suppliers of global liquidity. The rest are raising...
The main event last week for US investors was the FOMC decision. As expected, the Fed raised rates by a quarter-point and underlined that "ongoing increases in the target range will be appropriate". Powell went on to clarify that "ongoing increases" translated to a "couple" of rate hikes, which would put the terminal rate at...
Mid-week market update: The bulls are nervously getting ready for a party. Jeff Hirsch of Almanac Trader pointed out that two of his January indicators are positive. When all three are positive, the rest of the year tends to lean bullish. This year, the market has eked out a 0.8% gain for its Santa...
Preface: Explaining our market timing models We maintain several market timing models, each with differing time horizons. The "Ultimate Market Timing Model" is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade. The Trend...
In light of the dismal performance in the first nine months of a 60/40 portfolio in 2022, it's time to ask, "What's changed and what adjustments should investors make to their portfolios?" The answer is inflation, and it's a game changer. The correlation between stocks and bond increasingly rise as inflation rises. In...
Mid-week market update: So much for the Cleveland Fed inflation nowcast which was calling for a tame CPI surprise. The market reacted to the hot CPI print this morning by adopting a risk-off tone, though it recovered later in the day. For equity investors, keep in mind that the intermediate-term structure of the S&P 500...
Now that the S&P 500 has started to turn up after bouncing off a head & shoulders downside target. Green shoots are starting to appear for the bulls, is it time for investors to buy stocks and bottom fish? Rising recession fears Let's begin with why the market weakened. Recession fears were...
Take a look at this mystery chart. Is that a bullish or bearish pattern? This chart is just the start of my nine reasons to be bearish on risk assets. My analysis is mainly based on real-time pricing signals from the market and relies less on fundamental or macro analysis. This is a...
In the wake of the hot January CPI print, I have had a number of discussions with readers about the most advantageous way of positioning an equity portfolio in a rising rate environment. The most obvious strategy is to use an allocation similar to the Rising Rates ETF (EQRR) is to tilt towards value and...
Inflation fears have been rising in the wake of the hot October CPI report. Barry Ritholz, the CEO of Ritholz Wealth Management, recently issued an open challenge to the inflationistas. Which side of that bet would you take? Rising inflation concerns Inflation concerns are becoming widespread. FactSet reported the highest number of...
Both the June CPI and PPI came in hot and well ahead of expectations. There was the inevitable debate about the transitory nature of the price increases. Looking longer-term, however, the conventional models for explaining inflation have been unsatisfactory. Notwithstanding the numerous failures by Japanese policymakers, consider the US as another example. Let's begin...
Did anyone notice the upside breakouts in both gold and gold mining stocks? In the short-term, gold may have to contend with overhead resistance at the site of its 200-day moving average (dma). While I am no gold bug, the breakout could be a technical signal of an intermediate bullish phase for precious metals. ...
Rising inflation fears are all over the headlines. From a top-down perspective, inflation pressures are clearly rising. The Transcript, which monitors earnings calls, documented companies reporting rising inflationary pressures from supply chain bottlenecks and commodity price strength, which have the potential to create margin squeezes. “…the inflationary pressures, particularly surrounding some of...
The latest BoA Global Fund Manager Survey shows that respondents believe the biggest tail-risks to be inflation and its effects on the bond market. Are these worries overblown? How will these concerns affect asset prices? How transitory are inflation pressures? Recently, there has been a spate of reports about rising supply...
The fiscal and monetary authorities of the developed world are engaged in a great macroeconomic experiment. Governments are spending enormous sums to combat the recessionary effects of the pandemic and central banks are allowing monetary policy to stay loose in order to accommodate the fiscal stimulus. Eventually, inflation and inflation expectations are bound to rise....
Jerome Powell's Congressional testimony last week made the Fed's position clear. Monetary policy will remain easy for the foreseeable future. Inflation dynamics change, but not on a dime. While Fed policy will leave short-term interest rates anchored near zero, the market's inflation expectations have been rising. Last week, the 10-year Treasury yield briefly breached 1.6%...
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