Actionable market insights delivered weekly
Categories
AI
Asset Allocation
Big Tech
Books
Bubbles
Charlie Munger
China
Commodities
Consumer Confidence
Consumer Spending
Credit
Cycles
Debt
Discounted Cash Flow
Earnings
Economic Cycles
Employment
Equity Risk Premium
ETFs
Fed Reserve
Finding Value
Forecasting
Generative AI
Geopolicitics
Gold
Geopolicitics
Lessons
Macro/Econ
Magnificent Seven
Geopolicitics
Monetary Policy
Money Supply
Nvidia
oil
Precious Metals
Property
Quantitative Easing
Rates & Bonds
Real GDP
Real PCE
Recession
Retail Sales
Risk
S&P500
Sahms Rule
Soft Landing
Stocks
Tariffs
Trade
Trump
US 10-Year Yield
Valuations
VIX
Warren Buffett
Yield Curve
Uncertainty Weighs
It doesn’t take much these days to knock investors off balance. This week it was Trump’s 25% on auto tariffs and a slightly hotter-than-expected inflation print. Tariffs are inflationary… a tax on the consumer. And with (services) inflation remaining stubborn… it gives the Fed very little wiggle room to cut rates. In combination with various geopolitical developments and aggressive government spending cuts from the Department of Government Efficiency (DOGE) – this has pushed policy uncertainty to its highest levels since late 2020.
Worry About Growth – Not Inflation
Some people are concerned about mounting inflationary risks. For example, it was only last week the Fed raised its inflation projections – where core inflation is expected to grow at a 2.8% annual pace, up 0.3 percentage points from the prior reading. And whilst inflation may remain sticky in areas like services and shelter (which I will talk to more shortly) – I think we should be more concerned with growth.
The Slowdown is Here… Now What?
Feb 15th I asked this question: “Ready for a Growth Scare?” Markets were yet to correct at the time… however fast forward ~5 weeks and the growth scare has arrived. Now investors are taking notice. The Fed warned growth is likely to slow this week – where Chair Powell said economists outside of the central bank have generally moved up their estimated chance of a recession. The Fed downgraded its economic growth outlook while raising its inflation projection. They see the U.S. economy growing at a 1.7% pace this year, down 0.4 percentage points from what it forecast in December.
Consumer Confidence Sinks… Can the Market Rebound?
It was a roller-coaster week for stocks… maybe a hint of things to come? From mine, in the very short term, markets were deeply over-sold looking at its Relative Strength Index (RSI). Often when you see the RSI below a value of 30 – buying isn’t too far away. The last time stocks sank ~10% over a few days was 2020. However, in the absence of any crisis, generally this will see both short covering and/or bargain hunting. The bigger question is whether stocks can follow through? I don’t think we draw that conclusion yet…