ETF Tracker StatSheet
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MARKET RALLIES ON POSITIVE NEWS, BUT INFLATION THREAT LOOMS LARGE
- Moving the markets
The market was in a good mood today, thanks to some positive news on inflation and earnings. After the wild swings of yesterday, investors breathed a sigh of relief as the Fed’s preferred measure of inflation, the Core PCE Deflator, came in lower than expected at 4.1% year-on-year in June, down from 4.6% in May. The headline PCE also cooled down to 3%, the lowest since March 2021.
But don’t get too comfortable. There’s still a lot of pressure on prices from other sources, such as the a-cyclical component of inflation, which is soaring to record highs and is ignored by the Wall Street cheerleaders.
And then there’s the puzzling data point of the day: Americans’ incomes rose by a modest 0.3% month-on-month, less than the forecasted 0.5%, while their spending jumped by 0.5%, more than the expected 0.1%.
How did they manage that? Did they raid their piggy banks? Did they max out their credit cards? Did they sell their kidneys?
We may never know.
Bloomberg had this to say:
US inflation indicators have eased a bit lately, but they will heat up again as the economy picks up steam. That will push short-term rates higher. Investors shouldn’t get too excited by the recent softening in some key indicators like CPI, PPI and ISM prices paid indexes.
That’s a temporary blip, not a trend reversal. Many Fed and PMI surveys are warning that inflation will come back with a vengeance in the coming months.
Japan’s bond rout didn’t spread much today, and the US 10-year yield fell back below 4% after spiking above it yesterday. That triggered a rally in the S&P 500, which reached its highest level since 2022. This chart shows how dramatic the moves were in the past two days.
But this rally may be short-lived, as higher energy prices will soon bite into consumers’ wallets and corporate profits. Gasoline prices hit a 2023 high today, along with Brent Crude oil, which means the Fed will have to tighten more and faster than expected to keep inflation under control.
That means it’s only a matter of time before investors wake up to the reality that inflation is not going away, and that Powell will have to “go big or go home.”
Watch out below!
- “Buy” Cycle Suggestions
The current Buy cycle began on 12/1/2022, and I gave you some ETF tips based on my StatSheet back then. But if you joined me later, you might want to check out the latest StatSheet, which I update and post every Thursday at 6:30 pm PST.
You should also think about how much risk you can handle when picking your ETFs. If you are more cautious, you might want to go for the ones in the middle of the M-Index rankings. And if you don’t want to go all in, you can start with a 33% exposure and see how it goes.
We are in a crazy time, with the economy going downhill and some earnings taking a hit. That will eventually drag down stock prices too. So, in my advisor’s practice, we are looking for some value, growth and dividend ETFs that can weather the storm. And of course, gold is always a good friend.
Whatever you invest in, don’t forget to use a trailing sell stop of 8-12% to protect yourself from big losses.
- Trend Tracking Indexes (TTIs)
Stocks ended higher for another day, despite the sharp drop in Japanese bond prices yesterday. Investors regained confidence, but our trend tracking indicators showed mixed results.
This is how we closed 07/28/2023:
Domestic TTI: +6.64% above its M/A (prior close +6.41%)—Buy signal effective 12/1/2022.
International TTI: +8.71% above its M/A (prior close +8.79%)—Buy signal effective 12/1/2022.
All linked charts above are courtesy of Bloomberg via ZeroHedge.
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