CPI LIE, Fed Funds and Earnings and Recessions

Stock-Markets / Stock Market 2023 Jul 21, 2023 - 06:18 AM GMT

CP LIE Tuesday

The smoke and mirrors annual inflation indices which mask the true magnitude of inflation pain that will run for the whole of this decade will Tuesday deliver a mix bag, a sharply lower headline rate falling towards 4%, whilst a stubbornly high core rate that will remain above 5% which is what the Fed is focused upon and thus likely to send yields higher. So the CPI should be a net bearish for stocks. Remember the Fed target is 2% not 5!

Fed Funds

Market rates are higher but the Fed tracker is now at a 77% probability for a pause.. Whilst my expectations are for another rate hike, what's uncertain is will that rate hike be this month or next month. A pause this month followed by a rate hike next month would chime with a rally into late July to target 4500 before the big sell off, which means the anticipated minor correction could fail to materialise, anyway it's going to be a close call and not done and dusted as what the Fed rate tracker implies.

Earnings and Recessions.

The Twitter bear mantra is that stocks cannot bottom whilst earnings are falling as illustrated by Morgan Stanley and their perma bear Mike WIlson.

Which prompted me to conduct a quick study to see if this consensus view is true as to when earnings bottom relative to stock prices -

1957 1 year later
1974 1 year later
1980 1 year later
1990 1 year later
2009 6 months later
2020 9 months later

Earnings bottomed AFTER stocks by typically 1 year! This illustrates why I don't pay attention to the views of others because all they usually tend to do is regurgitate inaccurate old wives tails .Someone at Morgan Stanley needs to turn that light switch on, better still fire all of their analysts and just become a patron for 5 bucks per month!

Whilst many are forecasting a recession based on old data what they fail to see is what's staring them in the face - THE STOCKS BULL NARKET! I am feeling richer, you are feeling richer, everyone invested in stocks is feeling richer and probably similar for home owners, and what do people do when they are feeling richer? SPEND MONEY! The stronger the bull market the more likelihood is that the US is heading for a soft landing.

This ARTICLE is an excerpt form my recent analysis on the current state of the stocks bull market as it FOMO'd to new highs Stock Market FOMO Maniacs Rug Pull Imminent? US House Prices Trend Current Statethat was was first made available to patrons who support my work, so for immediate first access to ALL of my analysis and trend forecasts then do consider becoming a Patron by supporting my work for just $5 per month. https://www.patreon.com/Nadeem_Walayat.

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S&P

Targetting 4500 Mid Summer 2023.

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By Nadeem Walayat

http://www.marketoracle.co.uk

Nadeem Walayat has over 30 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

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