July’s Inflation Data Is In
In what is yet another bullish signal for the stock market, the Consumer Price Index (CPI) which measures inflation came in at 2.9% this morning. This is the first time since 2021 that inflation has fallen below the 3% threshold…
Today’s inflation report also came in below expectations. Both the Fed and Wall Street were expecting CPI data to come in at 3%. So, a 2.9% reading was quite a welcome surprise.
I’ve been predicting a bullish runup leading up to the election in November and a clean inflation report helps to smooth the path towards that after the recent market corrections.
Now, in fairness, I don’t actually put a lot of stock into these kinds of reports and I don’t even think the data is very reliable, but it at least gives a boost to sentiment which is what we’re going to need to lift this market up over the next 90 days.
Of course, the item on the agenda that will give us a real boost (which almost feels inevitable now) is a rate cut that we should see during the September Federal Open Market Committee (FOMC) meeting.
The Fed has been dangling the carrot of a potential cut for almost a year now so you’d think all the bullishness would be squeezed out by the false starts, but I’m guessing we’ll get a bullish surge through the stock market if/when it becomes a reality.
Now, again, my belief is that this is still very much a “smoke and mirrors” economy… I don’t actually believe – rate cut or not – that the stock market should be heading toward all time highs. I strongly anticipate that after November’s election, we will see a deeper correction.
The market has been on a torrid pace since 2020, making the 2022 “bear market” look like a blip on the radar.
We’ve never fully accounted for the trillions of dollars of unearned money clogging up the system (though I do believe interest rate hikes have some impact in cleaning that out)…
But the disconnect of the massively bullish market and the way most Americans are experiencing the economy at the grassroots level is real, and it’s been building up more and more tension.
We saw a hint of how fast things can fall with the recent short-term correction you can see on the right edge of the chart above…
But I think that’s just a small sample of the kind of market cap we likely need to erase to get back to any semblance of a true reflection of the economic reality we’re in.
The government will ultimately try its hardest to keep the market up leading into the election. But after that happens it’s going to be very hands-off for a few months up until the inauguration (and even beyond January, the Fed won’t be incentivized to “ramp things up” any time soon).
So my expectation is a significant correction in Q4 of this year or Q1 of next year. Obviously, that’s a fairly wide range so I won’t actually make any moves until we get some confirmation of that activity.
And, in the same way, I am looking to play the momentum we’re getting now until proven otherwise.
— Nate Tucci
P.S. After several weeks of being on the sidelines, my flagship strategy, Automated Options, looks primed for another opportunity on Friday!
