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With a 4.4% increase in economic growth in the third quarter and expectations that it could be higher in the fourth quarter, the so-called reflation narrative appears primed to dash out of the gates in 2026 at its current strong pace. The problem with assuming the reflation narrative will hold in 2026 is that it ignores important real-time inflation data. Before explaining a potential flaw in the reflation narrative lets define what it is. Per ChatGPT:
The reflation narrative is the belief that aggressive fiscal spending, easy monetary policy, and rising liquidity will sustainably accelerate economic growth, lift inflation, steepen yield curves, and favor cyclical and inflation-sensitive assets.
Economic activity is a function of demand. Thus, when economic growth is accelerating, as it has been, we must assume demand is increasing. However, the GDP data, portending strong demand, lags months behind real-time economic indicators. Thus, more real-time demand gauges allow us to assign a confidence level to the reflation forecast.
Truflation is a real-time private sector inflation gauge. It uses millions of online prices, transaction data, and private datasets to reflect actual consumer behavior and price changes. As we share below, courtesy of Bloomberg, the daily Truflation estimate of CPI has fallen sharply to 1.20%, well below the 2.00% level it began the year at. Further, the graph shows the strong leading correlation between Truflation and CPI. Presuming Truflation is an accurate measure of demand and prices, CPI should start declining rapidly, implying that the economic growth rate is likely to gravitate to lower levels, leading us to question the reflation narrative.
The Week Ahead
Earnings from the largest companies alongside the FOMC meeting should make for an interesting week.
The Fed meets on Wednesday to update its monetary policy. There are slim odds of a rate cut, as shown below, nor does Wall Street expect Powell to change the Fed’s outlook. Given the recent bump in GDP and stubborn inflation, Powell is likely to take a more hawkish stance and push back on potential rate cuts.
Five of the Magnificent Seven stocks report earnings this week. Microsoft, Meta, and Tesla announce their fourth quarter results on Wednesday, followed by Apple and Amazon on Thursday. Unlike in prior quarters, these stocks have been underperforming the market. Therefore, there is more upside potential if earnings are strong. Conversely, poor earnings could feed some of the negative narratives surrounding the “AI Bubble” and keep these stocks relatively weak.
The South Park Market Of 2026
Notably, in South Park, Eric Cartman once declared, “Screw you guys, I’m going home.” That line has become shorthand for frustration and fatigue when chaos overwhelms you during market volatility. For example, during the “Liberation Day” market decline, many investors sold out just as the market reached its bottom. The increase in market volatility was something we wrote about this time last year in “Curb Your Enthusiasm.” Notably, the same market dynamics that existed then persist today. Such suggests that investing in 2026 may also experience similar increases in volatility. That means anyone looking for a simple road map will end up feeling like Cartman walking out on his friends.
To avoid being Cartman, it is critical to understand that 2026 will not deliver certainty. Instead, investors should focus and make decisions based on probabilities backed by data, earnings trends, policy shifts, and macro signals. Wall Street analysts have already begun issuing universally bullish forecasts, some more cautious than others. However, while there are no guarantees of outcomes, a shifting environment of volatility and complexity is expected.
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