As long as Powell can persuade everyone that "transitory" was a valid theme, recent spike in inflation unsustainable, telegraphing only 2 more 25 basis point rate hikes is needed, the Goldilocks scenario stays on the table. Every data point is showing just how nasty inflation can be and how insidious. We all know there are CYCLES in inflation and lord knows we experienced the best stock market because of the 40 year disinflation theme. What no one has realized, like the start of a pandemic overseas, is that logic and facts gets sidestepped because human nature prefers scenarios that are optimistic regardless of the absurdity of that assumption. February data points showed income and spending came in at half expectations as prices keeps up the inflation theme. Today ISM Manufacturing Price data for February came in expansionary. Look at 10 year yield, the Us Dollar, and OIL as a clue to where inflation is headed.
The new thinking is that Powell will raise a wee bit more to perhaps 5.25% on Fed Funds by the summer. Everyone knows that the DMZ is 6%. It hits or crosses it all is over. I mean a devastating drop in the market.
So we either continue to show inflation is here to stay but not spiking to keep the theme alive of tapering off or we decide at some point inflation will exceed 6%. 10 year, OIL and Dollar should already telegraph this first. I also look at BITCOIN. It is holding up very well. It is my one asset that tells me when speculative betting is in trouble.
A drop from here to 3500 on SPX is possible. It would actually be the sensible path and an excuse to rally off a double low. I am afraid the more likely scenario is higher highs from here for 2 more months. A second half haircut of 50%.
Just my opinion not to be taken as a betting mechanism. As i point out if in 1925 had i expected the crash and economic disaster then it would have been as bad advice as those expecting markets to rise forever. Perhaps i am way off on timing.
======================================================================
"Energy and material sectors climbed over 1% each as commodity prices rallied after data showed China's manufacturing activity expanded at the fastest pace in more than a decade."
With China post lockdown scenario working similar to our post lockdown OIL and all commodities will SURGE once again. this will KILL any thought of a Goldilocks US Scenario. In fact I am startlingly surprised the street nor the FED has factored in an obvious spurt in economic activity in China causing huge headaches for the rest of the world. To me it was inevitable and obvious, like a pandemic from China coming here..
