The Market Is Wrong (Again)
Investors,
Disinflation has been arguably the most important catalyst for the strong performance we’ve seen in the stock market in 2023. While stronger than expected earnings have also stimulated asset prices, the disinflation story has been a critical component of the tailwinds we’ve seen for the market. The YTD results speak for themselves, particularly when focusing at the index level:
Dow Jones $DJX: +4.3% (on track to outperform historical calendar year returns)
S&P 500 $SPX: +16.1% (on track to outperform historical CY returns)
Nasdaq-100 $NDX: +39.7% (on track to outperform historical CY returns)
Russell 2000 $RUT: +5.2% (on track to outperform historical CY returns)
As inflation was rampant in 2022, the stock market faced immense pressure. Only one sector managed to shine bright & generate massive returns: energy. The discrepant returns between the S&P 500 & energy were vast in 2022:
S&P 500 (SPX) returns in 2022: -19.5%
Energy sector (XLE) returns in 2022: +57%
This year, as inflation has substantially decelerated (aka disinflation), the S&P 500 has made significant strides while energy stocks have struggled to keep up.
S&P 500 (SPX) returns YTD: +16.1%
Energy sector (XLE) returns YTD: +5.2%
This is the influence of inflation on market dynamics. If inflation is accelerating, we should own energy stocks. If inflation is decelerating, we should own the S&P 500, and technology stocks more specifically. Therefore, understanding how inflation is likely to evolve will help us position our portfolios in the short-term or identify which sectors we should be prioritizing as traders.
This report will act as a preview of my expectations for this week’s inflation data for the CPI, where I’ll be covering a variety of data and charts to stay ahead of the inflation trend, as I have all year.
Once again, I believe that the market is wrong about inflation dynamics.
While the July CPI data showed a modest re-acceleration, investors are concerned that August will show the same acceleration. I’m going to break it down, while also covering specific stock market charts & data to take advantage of new market dynamics. To support Cubic Analytics and benefit from the value of these weekly premium reports, upgrade your membership using the link below:
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