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…
Real PCE
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Ready for a ‘Growth Scare’?
We started this year with the market pricing in only “good things”. We had (a) the Fed ready to continue its easing cycle; (b) business friendly administration looking to cut taxes and lower regulation; and (c) the promise ‘limitless’ returns from AI. Investor expectations were very high – evidenced by the valuation multiples they were willing to pay (whether it was P/E; P/FCF; EV/EBIT etc). Traders were all leaning to one side of the boat. However, shares prices have lost all momentum the past 12+ weeks.
Real PCE & Wages Trend: Consumers Keep Spending
This week we received my preferred leading economic (and stock) indicator: real personal consumption expenditures (PCE). As a preface to this missive – as a long-term investor – our job is to carefully assess the risks. Part of that equation is knowing exactly where we are in the business cycle. For e.g., do you think we’re at the beginning or middle of an economic advance (with more to go)? Are we about to encounter a significant change in direction? If so, is that change for the better or for the worse?