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Stocks Soar As Inflation Increases Just 8.5%

By Michael KramerStock MarketsAug 11, 2022 03:54AM ET
www.investing.com/analysis/stocks-soar-as-inflation-increases-just-85-200628357
Stocks Soar As Inflation Increases Just 8.5%
By Michael Kramer   |  Aug 11, 2022 03:54AM ET
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So much for the Cleveland Fed and their CPI projection. figures, I have been following the thing for months, and the one time I publically discuss it, everything falls apart. It must be my bad luck.

The bond and FX market certainly didn’t view the CPI 'miss' as a big deal. I say 'miss' because who cares if the headline CPI runs at 9.1% or 8.5%? It is still more than 6% away from the Fed’s target.

Look at it this way; the 2-year rate is now 5.3% below the inflation rate. That is on par with 1980, and for inflation to come down, the 2-year rate needs to keep rising. That was what brought inflation down in the 1980s. The bigger problem may be that the dovish pivot may have received another nail in its coffin today when the Atlanta Fed GDPNow tracker showed third quarter GDP growth of almost 2.5%. This number tends to decrease over time, but that is a significant change from the first and second quarters. If correct, then there is no reason for a weak economy to warrant a dovish pivot because it means the economy isn’t weak. It could even mean that the Fed’s neutral rate is much higher than what the Fed thinks, and rates may have to rise even more. It is a significant number that needs to be watched.

2-Yr Rate Chart
2-Yr Rate Chart

But fear not, the stock market, which is never the brightest light, soared by 2.1%. Yep, it makes sense, CPI missed right, so inflation has peaked. Whatever that means. Yes, so even if inflation stays at 8% for the next three months, it matters not because inflation peaked; yes, that makes perfect sense to me.

It doesn’t matter that the Atlanta Fed’s 12-month Sticky CPI hit a new cycle high of 5.8%.

Atlanta Fed CPI Data
Atlanta Fed CPI Data

S&P 500

The bad news for me is that my 2b top reversal pattern broke yesterday. The rising wedge is still present, and now I can add a rising flag pattern (RED) to the bearish pattern list. Yes, well, I call it a rising flag. That is when you have what looks like a flag, but instead of it sloping down, it slopes up. So, again, I’m still thinking we see the 3,950 region. I’m not saying it happens today; this is over the next couple of weeks.

S&P 500 1-Hour Chart
S&P 500 1-Hour Chart

TIP

Meanwhile, TIP rates rose yesterday, and the divergence between the QQQ and the TIP ETF is getting to very uncomfortable levels. It is important to remember that the QQQ follows the TIP because the TIP represents real yields, and when the TIP ETF is falling, real yields are rising, and the more the TIP falls, the more expensive the QQQ gets relative to rates. Remember in the good ‘ole days when the Nasdaq was rising, and everyone was saying stocks were cheap because of negative real yields? Well, this is now working in reverse.

It means it will be painful when the QQQ catches down to the TIP.

TIP ETF 1-Hour Chart
TIP ETF 1-Hour Chart

VIX

The VIX fell below 20 yesterday, and the VVIX closed above 90 yesterday. The VVIX measures the expected volatility of the 30-day forward price of the VIX. Basically, implied volatility measures for the VIX are rising. So if the VVIX value is rising, it is probably a good indicator that the market is slowly and quietly starting to price in higher volatility levels.

VVIX Index 1-Hour Chart
VVIX Index 1-Hour Chart

Original Post

Stocks Soar As Inflation Increases Just 8.5%
 

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Stocks Soar As Inflation Increases Just 8.5%

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Comments (16)
Ahmed Taylor
Ahmed Taylor Aug 13, 2022 1:47PM ET
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I remember when inflation was 1.4 %
Samantha
Samantha Aug 12, 2022 5:24AM ET
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I agree that there isn't grounded reasoning for a dovish pivot. The CHIP and Ant-Inflation Acts are however generating excitement and since the Federal Reserve is adjusting rates without tapering, the impact of rate hikes is neutralized.
Samer Diab
Samer Diab Aug 11, 2022 11:29AM ET
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noob Michael the bear lol
Brad Albright
Brad Albright Aug 11, 2022 9:08AM ET
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What are the author's investment holdings? I don't see a disclosure.
King Agamemnon
King_Agamemnon Aug 11, 2022 9:06AM ET
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166022311088053.jpg
SHORT SQUEEZE! NEXT STOP 200 DMA AT 4320.  LET THIS BE A LESSON THAT THE MARKETS ARE NOT THE ECONOMY!
Mario tragik
Mario tragik Aug 11, 2022 9:06AM ET
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people down voting this just can't accept a simple truth about the markets. They don't and can't accept is a Casino, as simple as that.
King Agamemnon
King_Agamemnon Aug 11, 2022 9:06AM ET
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Mario tragik  the market punishes sinners. those who short an uptrend in anticipation of a pivot are guilty of pride. They think they are smarter than everyone. Those who buy at the top thinking it will go higher are guilty of greed.
Mario tragik
Mario tragik Aug 11, 2022 9:03AM ET
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"it must be my bad luck" lmao Kramer just stop making a fool of yourself. In all seriousness you should know some naive people follow you blindly and lose a lot of money, so have more responsibility. And to his followers, have you learned your lesson yet? or do you need more pain?
David Beckham
David Beckham Aug 11, 2022 9:03AM ET
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Agree economy is not market don’t keep telling people to short
James Pattison
James Pattison Aug 11, 2022 8:47AM ET
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Lmao… inflation rises “just” 8.5%… lmao
Brad Albright
Brad Albright Aug 11, 2022 8:47AM ET
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YOY. Month to month shows the more recent trend.
Kris Jay
Kris Jay Aug 11, 2022 8:38AM ET
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they usually say, don't fight the fed but for today's market, dont fight the market.   Cathy Wood and others want this market up regarless of Q3 or Q4 earnings.
John Walker
John Walker Aug 11, 2022 8:18AM ET
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Thanks for the sanity check.
Damian Wahner
Damian Wahner Aug 11, 2022 7:53AM ET
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manipulation plain and simple.
 
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