The markets yesterday shook off the hottest inflation reading in over a decade.
Highest inflation number since just before the dreaded 2008 Great Recession/ Financial Crisis.
Oh no!
It's over!
Think again. After an initial swift pull back right after the number came out... markets recovered and then... gasp... rallied. Even bonds rallied. WTF!!!
$SPY downside move on the morning CPI data is transitory pic.twitter.com/3b1Eul0Dvb
— UPBOptionMil (@UPBOptionMil) June 10, 2021
The transitory term is becoming common place. Essentially it means all this inflation fear mongering is misplaced. At least according to the FED and its Chair Jerome Powell.
Judging by yesterdays reaction to the inflation number the market seems to thinks its transitory too. The market is pretty smart. Remember last year when the market had its best week in 80 years on the back of the worst jobs report ever? Who was right? All the common folk crying foul on a market rallying with such a terrible jobs numbers? Or a market that was rallying knowing what lay ahead.
Betting against the market has been a fools game the last 12+ years. Sure a global pandemic offered some massive downside gains for a few weeks in March 2020... but even those bearish moments were fleeting at best.
So let me cut to the chase.
The huge CPI print was the change from one year earlier.
really? So we just beat numbers from, when the global economy was still basically shut down?
And last years numbers are being compared to an economy that is facing massive post shutdown demand amid a supply chain littered with bottlenecks and shortages?
Sales sucked in May of 2020.
They are doing much better now. And amid supply shortages sure as heck prices are going to go up.
But again, as I've mused previously this market will catch up at some point. And guess what?
There will come a time when supply begins to outstrip demand. Crazy I know. Which means prices may actually fall again. No way you say? I guess we will find out. However if inflation was truly on the cusp of running out of control in such a way that the FED had to slam on the brakes... stocks would crumble... bonds would crater, yields would rise.... and well... all the inflation fear would be more reality than just fear mongering.
Inflation fears generate clicks. Just like stock market crash articles generate clicks, follows, and views.
This tweet thread is a good take on inflation expectations and yesterdays CPI #
US #inflation surprises over the past few weeks have brought back fears of overheating.
But, while the US economy is expected to feel a lot warmer over the coming months, we do not anticipate spiraling inflation
via @OxfordEconomics
— Gregory Daco (@GregDaco) June 10, 2021
After 12+ years of successfully navigating every headwind... with success meaning higher asset prices.... it seems there are more people doubting the FED than ever before. Most notably about inflation and its 'transitory' nature.
I wonder who is going to be right in the years ahead....
[cue the sarcastic laugh]
Have a great Friday and a wonderful weekend