Moderate Growth, Lower Inflation
After yesterday’s announcement of the CPI data, the markets don’t seem to feel that we are out of the woods yet, but they are of the opinion that the lights of the neighboring town can now be seen in the distance and wild animals won’t be attacking us.
In other words, the potential of a major selloff has largely been avoided, but with the upcoming earnings season upon us, the up-in-the-air debt ceiling Congressional debate, the looming infrastructure program, and tapering and tightening as the only things to look forward to, rip-roaring markets don’t seem to be the base-case either.
The markets are still on high alert and very fragile. The best way to see this is to gauge the correlation between stocks in the S&P 500, because when everything moves in the same direction, it means that markets are moving according to macro-economic events, not based on business fundamentals.
It means investors are clinging onto hopeful news and right now, correlation is high:
Keep in mind that the markets have been battered by large sell programs in the past month, which means that Wall Street is largely bearish and I haven’t seen a major catalyst for it to change its mind.
Wall Street institutions, being the biggest market movers, acting as net sellers, means that retail investors buying the dip may not see the bounce and rally they’re gunning for.
93% Of Investors Generate Annual Returns, Which Barely Beat Inflation.
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After all, September saw major selloffs, the likes of which come once a decade, if not more rarely than that!
Let’s talk about the subject of rate hikes, because they aren’t necessarily bad for markets.
Rate hikes attempt to match what the free markets believe interest rates need to be with what the central bank thinks.
When done right, they create big rallies, and when they’re mismanaged, the opposite occurs.
We actually believe that markets would cheer normal rates, since housing prices as well as equities are enjoying the current bubble-status; we all want to see restraint, otherwise this debt party will overheat.
When we think about how the healthcare crisis is resolved going forward, I think we all agree that the worst is behind us, that more and more countries are going to go back to reality when it comes to fear and panic levels, and that vaccines or other forms of medication will be offered to those at higher degrees of risk.
Markets don’t move down or up, due to virus news; that’s it.
Gold and silver cheered yesterday’s news about inflation, since it is now perceived that central banks are not going to be aggressive with tightening, but moderate.
If gold and silver prices already price in the hikes and the FED’s policies, and still stay above the key support levels as they have, this could be a major moment.
The bottom could be in!
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