Fighting the Urge to Panic
Blowing off inflation... Cheaper Cocoa Puffs... Status quo for the Federal Reserve... Fighting the urge to panic... The 'rolling bull market' is still on... A few days from our biggest event of the year...
We saw more shrugs about inflation today...
I (Corey McLaughlin) wrote yesterday that we'd be watching the market reaction today to the latest "official" inflation numbers, the consumer price index ("CPI") covering September.
Another shrug – like yesterday's producer price index ("PPI") release received despite the numbers being above economists' consensus expectations – could be a further sign that investors are looking past high inflation as a major concern in the future.
If that's the case, it means that fewer and fewer folks are concerned about additional Federal Reserve interest-rate hikes to "fight" inflation. These elevated rates have been a major headwind for the markets since last March when the central bank began raising the "cost of money."
We continue to watch data points for signs of this trend. And this morning, we got another answer: More inflation. Ho-hum.
September's CPI – which measures prices paid by U.S. consumers – rose 0.4% from a month ago and 3.7% from a year ago. Both figures are slightly higher than Wall Street expectations, but based on today's price action, the stock market could not have cared less.
The benchmark S&P 500 Index was little changed until late-afternoon trading.
Higher rent, cheaper cereal...
The biggest driver of last month's headline inflation numbers was a higher cost of rent. But the data from the Bureau of Labor Statistics also showed signs that underlying inflation is getting back to some semblance of a regular pace.
Disinflation was even apparent in some sectors. Cereals like Cocoa Puffs and Raisin Bran, along with cakes and cookies, were apparently cheaper last month on balance than they were in August. As global news service Reuters reported...
A 0.6% jump in the cost of shelter [accounted] for more than half of the rise [in the CPI]. There were increases in the costs of rent and hotel and motel accommodation...
Gasoline prices rose 2.1% after accelerating 10.6% in August. Food prices climbed 0.2% for a third straight month. Grocery inflation edged up 0.1%. Consumers paid more for meat, fish and eggs, but prices of cereals and bakery products [fell 0.4%, the first drop] since June 2021. Fruit and vegetable prices were unchanged as were those of nonalcoholic beverages.
Whether all of these numbers are "right" is another debate, of course. But what we were watching was how the market reacted to them. If investors didn't appear to have a fit over another set of higher-than-expected inflation numbers, it would be a notable tell... And that's just what we saw.
The market doesn't think inflation is the biggest deal anymore. Or, at least, it doesn't think the folks at the Fed think it's the biggest deal anymore – and that additional rate hikes than are already expected (possibly one more this year) are unlikely.
Stocks did sell off late in the day, sending the major indexes into the red. The catalyst wasn't entirely clear as we finished up today's Digest, but it didn't appear to be directly related to the latest inflation numbers, even though we saw some mainstream media outlets make the connection.
Federal-funds futures traders are betting with 86% odds that the central bank won't hike rates at its November meeting, and they're penciling in a 33% shot of a 25-basis-point hike in December, according to CME's FedWatch Tool.
That's close to what expectations were yesterday.
Talk about climbing a 'wall of worry'...
As we wrote yesterday, the S&P 500 suddenly is back just slightly below its 50-day moving average and is still above its longer-term trend. This week, almost all of the major S&P 500 sectors but consumer staples are on pace for a winning week.
Meantime, a war has been going on in Ukraine for 18 months that in many ways is a proxy battle between the West and the rest... Major global economic powers are on both sides. Now another bloody conflict in the Middle East has begun that has the potential to further include world influencers like Iran and Saudi Arabia in the fray in one way or another.
(Unfortunately, in a geopolitics notebook that I refer to and update from time to time, I've diagramed a two-sided list of various nations under the heading "World War III," organized into allied groups. The U.S. and U.K. top one side, with China and Russia heading the other. India, notably, is floating around near the middle of the sketch.)
The latest conflict in the Middle East does have the potential to further disrupt global oil supply, and stoke inflation, but thus far, investors don't seem all that concerned. After Monday's oil spike that we wrote about, Brent crude – the international benchmark – has drifted slightly lower the past few days to less than $86 per barrel...
A reminder: Don't panic...
We read with interest today our friend Marc Chaikin's take on Hamas' terrorist attack on Israel and the response and market reaction. Marc is the founder of our corporate affiliate Chaikin Analytics and one of the savviest investors I've ever met, with five decades of professional experience...
He has been telling subscribers for nearly a year that stocks have been in a "rolling bull market" – meaning that different sectors are taking turns pushing the broad market higher. And the latest developments in the Middle East haven't changed his mind. As he wrote to readers of his free Chaikin PowerFeed newsletter this morning...
In short, the attack from Hamas happened as the market heads into mid-October. It's a time when panic often hits the market in one way or another.
Many folks will likely get spooked in the days ahead. Fears of an extended conflict could drive oil prices sharply higher and stocks lower.
As we'll discuss today, support levels in the S&P 500 Index will likely be tested (and perhaps broken).
That's especially true if the conflict expands further into the Middle East. If it involves other groups like Hezbollah and its Iranian sponsors, volatility could surge in the market.
But importantly, this development isn't a reason to panic...
Marc referenced what we did yesterday... that the S&P 500 has stayed above its 200-day moving average even after the pullback it suffered the past two months and the latest geopolitical developments. And he continued...
At the same time, we're now in the sweet spot of the year when stocks often make a "V-shaped" bottom. Historically, they rally in November and December to end the year.
So here's the deal...
I still believe the "rolling bull market" is alive and well. And once investors assess the situation in the Middle East, we'll likely get a buyable bottom in stocks.
Marc said he's "cautious on stocks today" and is watching support levels. But he strongly suggests that folks stay calm over the next couple of weeks, no matter what happens...
Given all the uncertainty, I understand if you're uncomfortable with your current exposure to stocks. If that's the case, then sell down to your "sleep well at night" level.
But whatever you do, don't panic.
Our colleague and DailyWealth Trader editor Chris Igou alluded to the same idea to his subscribers today, pointing out that the market is rewarding those "who didn't panic" after the late summer/early fall sell-off in stocks.
Chris got into detail on a pair of indicators that he uses to pinpoint near-term tops and bottoms in the broader market and explained how they have worked this time again to avoid succumbing to knee-jerk reactions. Check out his full issue today for more.
We're just a few days from our biggest event of the year...
As I've been mentioning lately, we're just days away from our annual Stansberry Research conference, and I couldn't be more excited.
Not only we will get to see so many of our colleagues and friends in person, and in Las Vegas... but we're also looking forward to hearing sharp market insight from folks like Marc and Chris, along with various opinions and takes from our team and invited guests all in one spot.
We've got tons of great speakers lined up, including your favorite Stansberry Research editors and analysts like Dr. David "Doc" Eifrig, Dan Ferris, Eric Wade, Greg Diamond, Dave Lashmet, and Brett Eversole... and invited guests like Morgan Housel, Danielle DiMartino Booth, Josh Brown, Ben Mezrich, and Lance Armstrong (yes, that Lance Armstrong – the former cyclist who now has investing interests).
Stansberry Research founder Porter Stansberry will be there live on stage, too. So will other familiar faces like Meb Faber, Rick Rule, and Empire Financial Research founder Whitney Tilson.
Next week, I will share highlights from the conference in the Digest and try to give you a sense of what's going on "in the room" and in the hallways and casinos at the Encore at Wynn Las Vegas. That'll give you a taste of our biggest event of the year.
But if you aren't going to be in Vegas yourself, I'd also encourage you to consider getting access to our livestream.
You can watch the presentations and hear all the recommendations from the comfort of your couch or office, and you'll get access to on-demand recordings, breakout sessions, and transcripts of all presentations. You can pause or rewatch as many times as you like through the end of the year.
Click here for more details about our livestream package.
New 52-week highs (as of 10/11/23): Booz Allen Hamilton (BAH), CME Group (CME), Alphabet (GOOGL), Structure Therapeutics (GPCR), Eli Lilly (LLY), Meta Platforms (META), Omega Healthcare Investors (OHI), Palo Alto Networks (PANW), Trane Technologies (TT), Textron (TXT), and VMware (VMW).
A quiet mailbag for the first time in a while today... Do you have a comment, question, or topic you'd like to see us cover? As always, e-mail us at feedback@stansberryresearch.com.
All the best,
Corey McLaughlin
Baltimore, Maryland
October 12, 2023