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Investors,
This report will cover:
Key S&P 500 internal data
An updated view on earnings season
Two strategies for how to manage risk in this current market environment
The five most important charts to cement the validity of the current uptrend
But first…
Less companies are citing “inflation” in their earnings report, which has a fascinating correlation with actual inflation trends:
It’s perhaps a “chicken vs. the egg” dilemma, but this massive decline in the amount of inflation citations in the latest quarterly earnings season is not indicative of reaccelerating inflation. Then take into consideration recent comments from Raphael Bostic, the President of the Atlanta Federal Reserve, who stated the following:
“I am hearing businesses say they are at the limits of pricing power and not able to fully pass-through input costs.”
In other words, after 3+ years of passing higher input costs onto the consumer and raising prices, firms have reached a point of saturation. Consumers, who are experiencing slower levels of wage growth (but wage growth nonetheless), are increasingly sensitive to prices and becoming more selective about how much they’re spending.
While Bostic’s quote is anecdotal, it’s important, particularly if the implications are being represented in the actual data itself… and it is!
As referenced in the FactSet data above, and the interesting chart below, the latest round of CPI data showed that disinflationary trends were re-established in April.
While prices continue to rise, the pace at which they are rising is slowing.
This distinction and recognition of disinflation is so key because my contention has been that the disinflationary environment has been one of the key catalysts for the ongoing uptrend in financial asset prices.
Therefore, continued disinflation is more likely than not bullish for asset prices.
Looking at broad-basket measures of CPI in April 2024, we see the following:
🟢 Headline CPI +3.36% (vs. +3.48% prior)
🟣 Core CPI +3.61% (vs. +3.8% prior)
🟠 Median CPI +4.48% (vs. +4.55% prior)
🔵 Trimmed-mean CPI +3.52% (vs. +3.61% prior)
Modest decelerations, but decelerations nonetheless.
Therefore, is it any surprise that asset prices are back at all-time highs, as I highlighted in the intro to yesterday’s newsletter? Not at all.
It fits within the thesis that I’ve been sharing for the past year: softening, but resilient & dynamic, macroeconomic data will continue to produce tailwinds for asset prices in a disinflationary environment.
It’s not sexy. It’s not complex. It’s not eye-opening. (cough cough, Doomers)
But it’s simple & effective in terms of navigating the market.
I can’t speak for those of you who are reading this, but I’m here to make money in the market. I’m not here to sound smart or focus on niche topics that don’t deliver alpha.
I’ve found a way to understand the Federal Reserve’s reaction function and how to use macro data to determine the big-picture currents that move the market. Coupled with the detailed analysis of stock market trends, data, and technical analysis, these two views help to paint the full picture of market dynamics and allow me to align with probabilistic outcomes.
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In them, I provide objective analysis of the most important charts, datapoints, and trends that are actively influencing & shaping my personal opinion on the market.
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I have some great info to share in this report, so let’s dive in.