To view this email as a web page, go [here.]( [Power Trends] Donât Let the Inflation Rollercoaster Scare You Out of Stocks
Rollercoasters seem to be one of those love âem or hate âem kind of things. Personally, Iâm a huge fan â of the amusement park ones, that is. But whether you like those or not, we all hate the inflation-interest rate coaster weâre riding right now. On Wednesday, consumer prices rose more than expected. Down we go. Today, wholesale prices rose less than expected. Ahhh... a smoother stretch. Weâve been on this ride for two years now â since March 16, 2022 â and you can see the ups and downs in the S&P 500 along the way.
We endured a few dips over the last month, but nothing major. And best of all, when we finally get off this rollercoaster, weâll be much higher than when we got on. Data Shows Lower Rates Are Coming
With the Federal Reserve and investors expecting three rate cuts in 2024, yesterdayâs data showing consumer prices increased more than expected called into question whether the Fed will be able to pull that off. The first thing to remember is that the Fed hasnât raised rates in nine months. The last hike was on July 26, and that preceded a very unpleasant three months going mostly downhill. But the climb these last six months has been impressive.
Stocks have proven they can soar with inflation and interest rates where they are. The key now is earnings â and we just happen to be kicking off the next reporting season tomorrow. I expect the trend to continue here as well â which is great, because the data is positive. Over the last 10 years, 74% of S&P 500 companies beat analystsâ earnings estimates and 64% topped revenue estimates. (Either analysts are lousy at their job or they want to aim low, but thatâs a conversation for another day.) Upcoming earnings will likely stick close to this well-established pattern. Based on history, I expect somewhere around 79% of companies to beat on earnings and 67% on sales estimates when they report first-quarter results. If we come even remotely close to that, it means the economy remains strong and that companies are making sales and earning profits. Thatâs ultimately what moves stocks higher. Sure, inflation is higher than we want it to be. But itâs way down from its peak of 9.2% in June 2022.
And howâs this for perspective? The current inflation rate â 3.5% â is below the 64-year average of 3.77%. The S&P 500 is more than 8X higher in that time, when inflation averaged more than it does right now. RECOMMENDED LINK [What should you be doing to âA.I.-Proofâ your retirement?](
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Investors are now fixated on when the Fed will cut rates and how many times in 2024. Those are important questions, yes, but not the most important. We know lower interest rates are coming, and thatâs what really matters. Why else would stocks have soared the last five months? Multiple data points support lower rates, from inflationâs strong downtrend to current rates actually above the 64-year average to the unusually big spread between rates and inflation. Interest rates (5.3%) are more than 50% higher than inflation (3.5%). Historically, that spread is just 1.03%, so it will narrow. Plus, interest rates are rarely higher than inflation to begin with, and they are dramatically higher now. Whatâs more, Big Money has yet to flip to any kind of pronounced selling. Going back to last November when the huge rally started, the biggest investors in the world simply arenât dumping stocks.
MAPsignals.com
My [Quantum Edge system]( detected 75 unusually heavy sells yesterday, which is more than weâve seen most of the last few months but was exceeded in both mid-February and mid-March. It doesnât come close to last October when we were picking up more than 300 sell signals in a day. Itâs still time to own stocks. Economic data, stock data, and my own quantitative data all point to higher prices ahead. We never know what the day-to-day path getting there will look like, but donât let that scare you out of owning the highest-quality stocks in the market right now. As regular readers know, you want to own stocks with growing businesses (as measured by fundamentals), strong trading action (as measured by technicals), and loads of Big Money interest and support. There are great stocks out there right now with this [Quantum Edge trifecta]( and those rollercoaster dips are great opportunities to jump on for the ride higher. Talk soon, [Jason Bodner]Jason Bodner
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