Fed’s 2% Inflation Goal: A Long, Slow Fight 

Another month, another hotter than expected inflation report. This time it was one which the Fed focus on: "Core PCE". Expectations were for 4.3% YoY - it came at white-hot 4.7%. Where is the problem? Simple... services. And until we see unemployment tick higher... core services inflation will remain sticky. The Fed has a long fight on its hands... and the market is only recently connecting those dots

Equities Often Slow to Connect the Dots

Last week I warned the market was poised for a sharp pullback. This week we got it. In short, both fundamentally and technically the market felt vulnerable. Market multiples pushed 19x forward on little substance. And from there, it did not take much for the bulls to lose their nerve...

Managing Risk During ‘FOMO’

There are three important facets to the game of speculating required to make you consistently profitable: (1) understanding your psychology and emotions; (2) a deep understanding of how to manage your risk profile; and (3) access to a wide array of strategies that suit any range of market conditions. Today I think the first of these could be costing a lot of people money... in this case the "fear of missing out". This is a dangerous mindset which 'infects' a lot of speculators... don't let it be you.

Why a Rising US 10-Yr Yield Presents Opportunity

Bond yields are once again starting to rally. Rates are likely to be higher for longer. The US 10-year is now pressing 3.80% - and likely to exceed 4.0% in the coming weeks. The question is how how far will it go? My view is it will unlikely stay above 4.40% for any sustained period. And if anything - will resume it's downtrend in 2024 as we approach recession. That represents an opportunity for investors - here is how I am trading it.

Bonds Realign with the Fed… Not Equities

From the first week of 2023 - bond markets were at odds with the Fed. For example, yields on the 2-year treasury plunged from 4.50% to barely above 4.0% over the past 6 weeks. And yet - the Fed were resolute in their resolve to keep raising rates. Something was amiss. Turns out that bond markets have pivoted and now see 'eye-to-eye' with the Fed that rates are staying higher for longer. Go figure. However, equities are yet to get the memo.... that's risky.

S&P 500: ‘False Break’ Warns of Pullback

This week the S&P 500 performed a 'false break' of its previous 4100 high. Technicians see this as a reliable reversal signal. However, on the other hand, there are bullish arguments we can make. The mix of bullish and bearish technical signals make shorter-term 'tactical' trading very difficult (that's not my game). Here's how I'm thinking about it...

Bonds React to “Higher for Longer“

Bond markets (and the US dollar) appear to be reacting to the likelihood the Fed has 'more work to do' on bringing inflation down to its 2.0% target. For e.g., the US 2-year treasury has surged almost 50 bps the past couple of weeks on stronger than expected economic data (eg surging jobs and higher wages). Meanwhile, JP Morgan's CEO - Jamie Dimon - said it's too early to declare victory on inflation. What does this mean for stocks?

Market Refuses to Believe the Fed

The S&P 500 is optimistic on three things (a) avoiding a recession; (b) rapidly falling inflation; and (c) two rate cuts before the end of the year. And the market could be right. However, I think it's optimistic. What's more, they are choosing to fight the Fed.

Powell Leans Dovish – Sending Stocks Higher

The market was worried about an overly hawkish Fed heading into the Feb FOMC meeting. However, Fed Chair Powell appeared to lean the other way... hinting at dovish tones. New language like 'disinflation' were introduced... suggesting the cash rate may not need to get to 5.0%. It didn't take much for stocks to rally as a result...

Bear Market Rally? Or Something More?

About 100 of the 500 S&P companies have reported Q4 2022 earnings. TL;DR is they are 'average' at best. Most have barely met already lowered expectations. What's more, forward guidance is weak. However, the bulls are betting on inflation continuing to plunge forcing the Fed to cut rates later in the year. I'm not yet prepared to support that thesis... with services inflation still running at 5.2%. There are some signs things are improving.

Remain Wary of Permabears

Jeremy Grantham is a well known permabear. This week - he called for a possible 50% correction. Sure... it's probable we see something in the realm of 20%... but 50%? I decided to look at Grantham's track record against the S&P 500 over 25 years. Guess what - he has woefully underperformed the market. Hardly surprising. Beware of doomsday 'crash callers' like Grantham... and he is not alone. They are dangerous.

Thinking Through Both the Bull & Bear Case

Are you a bull or a bear? That answer will largely depend on your timeframe. However, there are solid arguments for both the bull and bear case in the near term (next 12 months). This post looks at each and why I still lean bearish in the near-term. However, I will treat any meaningful dip (eg 10%) as a buying opportunity.