Markets Cheer For Soft Landing
Investors,
Disinflation is in full force, exactly as I’ve been saying that it would all year. I won’t re-hash the October 2023 CPI data, but you can read my thoughts on it here:
The day after the CPI was released, the Producer Price Index (PPI) for October 2023 was published, which also reaffirmed my thesis. I’ll keep my comments on this brief:
On a month-over-month basis, Wall Street was expecting to see headline PPI rise by +0.1%. The actual result was -0.5%, showing outright deflation relative to September’s producer prices.
On a year-over-year basis, headline PPI decelerated from +2.2% to +1.3% while core PPI decelerated from +3.0% to +2.9%.
This is exactly what disinflation looks like.
In response to the disinflationary data this week, stocks celebrated. This is exactly why I’ve been so focused on getting inflationary dynamics & the trend of disinflation correct — stocks & asset prices thrive during disinflation.
What else do stocks like? Ongoing proof of the famed “soft landing”.
Disinflation + vibrant labor market + resilient GDP growth is the recipe for success.
The Atlanta Federal Reserve’s model-based GDP forecast was published during the week, predicting for +2.2% real GDP growth in Q4 2023.
While this is softer than the Q3 result (+4.9%), it’s still solid growth. As I said a few weeks ago “softness (not weakness) is bullish”. So far, this continues to be true.
Since the late-October lows, the U.S. indexes have been on fire:
Dow Jones $DJX: +8.1%
S&P 500 $SPX: +10.0%
Nasdaq-100 $NDX: +12.6%
Russell 2000 $RUT: +10.0%
YTD returns are now positive, across the board:
Dow Jones $DJX: +5.5%
S&P 500 $SPX: +17.6%
Nasdaq-100 $NDX: +44.8%
Russell 2000 $RUT: +2.0%
Bonds have rallied back. Bitcoin achieved the highest daily close of the year. Even utility stocks have participated in the upside! All of these bullish dynamics are being confirmed by the decline in the U.S. Dollar relative to other currencies:
My expectations over the past few weeks is that the DXY is going to break below the 200-day moving average cloud. As you can see in the chart above, DXY closed perfectly within this dynamic range, on track for a breakdown within the coming weeks, if not days. This will unequivocally create a strong ripple effect for equities, Treasuries, Bitcoin, and crypto.
I wanted to provide these brief comments to clarify my assessment of current trends; however, I also wanted to share my recent interview with Brandon from Green Candle Investments. Brandon invited me onto his show at the end of October and our interview just dropped, which you can watch below. In it, I provide an in-depth assessment of ongoing macro conditions, monetary policy, and how I’m viewing Bitcoin and the equity markets. Enjoy!
Best,
Caleb Franzen
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