Fed’s Tightrope Walk Amid Inflation: Market Optimism Holds Strong

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Today’s stock market narrative unfolded with a twist, as traders grappled with the implications of April’s Producer Price Index (PPI) report. The PPI, a barometer of inflation at the wholesale level, rose unexpectedly, signaling that inflationary pressures might not be subsiding as hoped.

This revelation initially sent a shiver through the markets, but the initial shock was mitigated by downward revisions to March’s wholesale prices, which suggested that inflation might still be on a downward trajectory.

Despite the mixed signals, the markets rallied, buoyed by the belief that the Federal Reserve might maintain its current policy stance. The Fed, led by Chair Jerome Powell, has indicated a need for patience, suggesting that the path to stabilizing inflation will be a marathon, not a sprint. Powell’s remarks hint at a cautious approach, with the central bank poised to let its restrictive policies gradually temper the inflationary heat.

Amidst this backdrop, meme stocks and Small Caps seized the spotlight, while the Nasdaq and the MAG 7 stocks soared to new records. The bond market, however, experienced volatility, with yields reflecting the day’s inflationary concerns and subsequent reassurances. The dollar’s fluctuations and gold’s luster provided a contrasting picture of stability and uncertainty.

Cryptocurrency and crude oil, on the other hand, relinquished their previous gains, painting a picture of the market’s fickleness. The stark contrast between the Nasdaq’s performance and the broader US Macro data raises questions about the sustainability of this divergence.

Considering these developments, one can’t help but ponder the resilience of the current financial conditions. With the Fed Fund rate at its highest in over two decades, and the market seemingly unfazed by potential risks, what could be the catalyst that aligns these divergent paths?

Could there be an unforeseen event on the horizon that will reconcile the optimistic market sentiment with the cautionary economic indicators?

2. Current “Buy” Cycles (effective 11/21/2023)

Our Trend Tracking Indexes (TTIs) have both crossed their trend lines with enough strength to trigger new “Buy” signals. That means, Tuesday, 11/21/2023, was the official date for these signals.

If you want to follow our strategy, you should first decide how much you want to invest based on your risk tolerance (percentage of allocation). Then, you should check my Thursday StatSheet and Saturday’s “ETFs on the Cutline” report for suitable ETFs to buy.

3. Trend Tracking Indexes (TTIs)

In the latest financial session, the markets experienced an initial stumble due to a Producer Price Index (PPI) reading that fell short of expectations. This unexpected downturn caused a momentary flutter of concern among investors.

However, this sentiment was short-lived as traders soon embraced the adage that sometimes “bad news” can be “good news.”

With this change in perspective, a wave of optimism swept through the market, sparking a recovery that led to a positive turnaround.

By the close of the session, this renewed confidence was reflected in the performance of the major indexes, which all reported moderate gains. Echoing this upward trend, our TTIs also charted a similar course.

This is how we closed 5/14/2024:

Domestic TTI: +9.04% above its M/A (prior close +8.61%)—Buy signal effective 11/21/2023.

International TTI: +9.98% above its M/A (prior close +9.50%)—Buy signal effective 11/21/2023.

All linked charts above are courtesy of Bloomberg via ZeroHedge.



Do you have the time to follow our investment plans yourself? If you are a busy professional who would like to have his portfolio managed using our methodology, please contact me directly to get more details.


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