- Moving the markets
Year-over-year, consumer prices increased by 4.9%, down a tad from the expected 5%, while the month-over-month inflation rate of 0.4% was also in line with projections. While traders interpreted that as good news, market reaction was mixed, with the major indexes advancing only moderately.
When looking under the hood, however, we saw that there is more to this story than just a headline number, namely the fact that inflation continues to outpace Americans’ rising wages—for the 25th straight month, according to ZeroHedge. Ouch!
Still, the softening of the CPI pulled June rate-hike odds down from 20% to less than zero. The markets spiked initially, then dumped into the red but managed to recover into the close. It was a chaotic session with no clear direction and a marginal outcome.
Helping the bulls was a double short squeeze attempt, which in the end did not do much to ignite bullish spirits. The same uncertainty emerged in the Regional Banking circus, where the index (KRE) was pumped and then dumped, which was duplicated in all bank stocks.
Bond yields took a hit, with the 2-year losing its recent gains along with its 4% level. The US Dollar rode its own roller coaster, while Gold followed the overall theme, namely cranking, then tanking but bouncing to a green close. Let’s see what the release of the PPI can do for the markets tomorrow…
2. “Buy” Cycle Suggestions
For the current Buy cycle, which started on 12/1/2022, I suggested you reference my then current StatSheet for ETF selections. However, if you came on board later, you may want to look at the most recent version, which is published and posted every Thursday at 6:30 pm PST.
I also recommend you consider your risk tolerance when making your selections by dropping down more towards the middle of the M-Index rankings, should you tend to be more risk adverse. Likewise, a partial initial exposure to the markets, say 33% to start with, will reduce your risk in case of a sudden directional turnaround.
We are living in times of great uncertainty, with economic fundamentals steadily deteriorating, which will eventually affect earnings negatively and, by association, stock prices.
In my advisor’s practice, we are therefore looking for limited exposure in value, some growth and dividend ETFs. Of course, gold has been a core holding for a long time.
With all investments, I recommend the use of a trailing sell stop in the range of 8-12% to limit your downside risk.
3. Trend Tracking Indexes (TTIs)
Despite chaotic market behavior after the CPI release, in the end, we ended the session just about unchanged. Maybe tomorrow’s PPI will provide us with more clarity.
This is how we closed 05/10/2023:
Domestic TTI: +0.11% above its M/A (prior close +0.13%)—Buy signal effective 12/1/2022.
International TTI: +6.10% above its M/A (prior close +6.37%)—Buy signal effective 12/1/2022.
All linked charts above are courtesy of Bloomberg via ZeroHedge.
Contact Ulli