The Trend Is What Matters

DAILY ISSUE

The Trend Is What Matters

Hello, Reader.

It’s been a rough month… in a rough quarter… in a rough year.

Last week’s CPI numbers, despite not being terribly off of analysts’ expectations and moving in the right direction, cratered the hard-won 4,100 level on the S&P 500 and dragged it beneath 3,800.

Since then, the market has been floundering, and the speculation that this week’s Fed’s meeting will deliver another a dramatic rate hike, is not helping.

As I’ve said before, it’s not that the Fed’s rate hikes are irrelevant; it’s that the market puts too much emphasis on particular one-off meetings or events. The trend is what matters, and there’s no question that the interest rate trend of the last few months has been up. And we’ll be seeing more of that trend tomorrow when the Fed hikes short-term rates once again.

But, we may be approaching the silver-lining stage – the moment when investors begin to believe that the Fed has accomplished its task of taming inflation. I think that moment is very close.

All trends point to subsiding inflation.

Energy is trending lower (that is, everything crude-oil related). The supply-chain issues are clearing up. And final demand from both consumers and businesses is moderating.

Because of these key disinflationary factors, I expect the market to begin “looking ahead” to when inflation concerns have diminished. I want to revisit some thoughts from July when, as they are wont to do, the Fed most recently terrorized investors.