The yield curve is no longer reversed, but inflation continues to be higher, as evidenced by today’s 11.2% reading for PPI. However, it is a growing chorus of market commentators who are seeing signs of “peak inflation” which means low inflation ahead and potentially a very clear signal for the stock market (SPY). If it was easy. So let’s discuss what we know at the moment that leads to the best investment strategies to navigate this fragmented waters in the weeks and months ahead.
(Enjoy this updated version of my weekly commentary from ReitMister Total Return Newsletter).
Market consolidation and sector rotation remain in place. With range bound trading… but don’t confuse it for a quiet market. We still endure violent instability day by day and in groups.
There are 2 trends to pay the bill: energy and growing rate business. We have aggressively lost everyone and are enjoying the rewards because our portfolio is in positive territory this year. But that doesn’t mean everything is a rainbow and lollipop.
So let’s dig in with the latest data to appreciate the future market direction, including the rising narrative that we are reaching the “peak inflation”.
Last week’s commentary (Bear Market Square ?: Inverted Yield Curve) is an important starting point for this week’s conversation. So make sure you read it first and then proceed with the additional insights below
The first thing to note is that the yield curve has not yet been reversed at the moment. In fact, since the beginning of the month, the spread has spread nicely: 2.365% for 2 years vs. 2.703% for 10 years.
Then the ideas confirmed in last week’s FOMC minutes point to their aggressive plans to further free their $ 9 trillion (yes, trillion) position from the balance sheet. And they will make 90 billion a month for the foreseeable future.
This increased supply of Treasury bonds sold by the Fed will require higher rates to entice new buyers due to inflationary conditions. And thus the inverted yield curve will fade further into the fear distance as the Fed issues more bonds in the market and long-term treasury rates continue to get higher and higher. This is obviously a positive one for our 2 direct transactions at high rates and for the regional banks (3 Ticker Reitmeister Total Return is reserved for members জান learn more about these trades here>).
Thus the idea that there is a recession warning from a reverse yield curve is becoming less and less valid. But in fact inflation is still higher, as evidenced by this week’s CPI and PPI reports.
Now let’s move on to the topic of top inflation. Now a growing number of market strategists are claiming that inflation is likely to rise to the top and thus down in the future.
This morning it was hard for PPI to see 11.2% year on year. However, economists who focus on these issues have pointed to the artificial fall in prices last spring / summer, which has seen inflation rise to an unreasonably high level, which will now fade. And when it is, then we will see the rate medium.
Just as you breathe a sigh of relief, unfortunately, the next hoop is the big hope that the Fed will see these signals clearly and not move too much housing (to raise rates) and thus hurt the economy. Yes, it is true that the Fed has a bad track record on this front. But since these people are actually students of history, they have probably learned from the past, which is expected to lead to better decisions at this time.
Hope is not a strategy that explains why investors are stuck between the highs and lows of the year. The more evidence the Fed gets, and the higher the economy, the sooner stocks will break higher.
Conversely, if there are increasing signs of economic losses from high inflation, potential stocks will show recent downward indicators again … and maybe less.
Sorry, the path is not clear … but economics is a soft science. This does not mean accurate. And so the relationship between the stock price and the future is not clear.
This is why we are leaning towards the trend that is paying the bill (energy and growing rate business). Stay away from industries damaged by high rates and high electricity prices (house building, auto, trucking etc.). And last but not least, the need to be agile to make our portfolio more aggressive or conservative.
What to do next?
Discover my “Lucky 13 Trades” inside the ReitMister Total Return portfolio that suits this busy market environment.
Note that this newsletter service strongly beat the market last year. And indeed in the positive zone in 2022 because most other investors are suffering heavy losses.
How is this possible?
Clue OK in the name: Reitmeister Total returns
This means that the service was created to find positive returns in all market environments Not just when the bull is running full steam. Heck, anyone can benefit from that environment.
Even so, owning one is still beyond the reach of the average person.
Discover what 40 years of investment experience can do for you.
Also get instant access to my entire portfolio including the current “Lucky 13 Trades” which is designed to excel in this unique market environment. (There are 3 lesser known investments that actually benefit from growing rates).
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Wishing you a world of investment success!
Steve Reitmeister… But everyone calls me right (pronounced “right”)
CEO, Stock News Network and Editor, ReitMister Total Returns
SPY shares fell $ 0.23 (-0.05%) in after-hours trading on Wednesday. Year-to-date, SPY is down -6.37%, compared to the% increase in the benchmark S&P 500 index over the same period.
About the Author: Steve Reitmeister
Steve is better known to Stocknews listeners as “Riti”. Not only is he the CEO of the firm, he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reitie’s background, including links to her recent articles and stock picks.
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