• 287 days Will The ECB Continue To Hike Rates?
  • 287 days Forbes: Aramco Remains Largest Company In The Middle East
  • 289 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 689 days Could Crypto Overtake Traditional Investment?
  • 693 days Americans Still Quitting Jobs At Record Pace
  • 695 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 699 days Is The Dollar Too Strong?
  • 699 days Big Tech Disappoints Investors on Earnings Calls
  • 700 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 701 days China Is Quietly Trying To Distance Itself From Russia
  • 702 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 706 days Crypto Investors Won Big In 2021
  • 706 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 707 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 709 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 709 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 713 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 714 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 714 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 716 days Are NFTs About To Take Over Gaming?
Trade In Counterfeit Goods Hits Half A Trillion Dollars

Trade In Counterfeit Goods Hits Half A Trillion Dollars

The counterfeit market has breached…

Another Retail Giant Bites The Dust

Another Retail Giant Bites The Dust

Forever 21 filed for Chapter…

  1. Home
  2. Markets
  3. Other

Could The Bulls Run Into Year-End?

As noted in detail on May 14, it is always important to understand both the bullish and bearish case for stocks. We recently noted two potentially bullish developments: an unprecedented drop in investor fear, and what appears to be a successful retest of a long-term breakout for the broad NYSE Composite Index. While the headline number for Thursday's GDP report was impressive, the report contained something that may keep the Fed in a market-friendly mode.


A Dovish GDP Report?

Deflationary Spiral

A case can be made that this week's GDP report was skewed favorably by Uncle Sam. From Bloomberg:

"The GDP number's fine, not spectacular," Michael Block, chief equity strategist at Rhino Trading Partners LLC in New York, said by phone. "The inflation data isn't great and the quality of the GDP beat isn't great as a lot of it is from government and defense spending. It adds to dovishness."


Fear Of Deflation Impacts Fed

Low inflation can eventually slip into deflation territory. Once deflation takes hold, it can morph into a negative feedback loop know as a deflationary spiral. If you were surprised that bonds started strongly Thursday after what appeared to be a strong GDP report, there is a logical explanation. Bond buyers were focused on the inflation data. From The Wall Street Journal:

The lack of inflation in the U.S. and around the world remains a concern for economy watchers and a key factor keeping bond buyers around. Within Thursday's GDP report, the price index for personal consumption expenditures rose at a 1.2% annual rate in the third quarter, from 2.3% in the second quarter.


Investment Implications - The Weight Of The Evidence

As noted in last week's video, the improvement in the hard evidence has allowed us to scale into equity positions numerous times in the past two weeks. The "fear reset" in the VIX is still holding in a bullish manner for equities (see below). If the market can continue to gain traction based on earnings, GDP, and tame inflation data, we will most likely continue to increase equity exposure.

VIX Charts


Concerns Remain

Europe's economy and low inflation could eventually impact the USA. We must also continue to keep an open mind about all outcomes as the Fed begins to normalize interest rates.

 

Back to homepage

Leave a comment

Leave a comment