A little less than a week ago, I wrote an article about inflation and how it’s nothing more than a pipe dream in Fed Chief Jay Powell’s head. Let me expand on that article, maybe from a slightly different approach this time. The inflation rhetoric just won’t let up. Apparently, it makes no difference that the annual rate of core inflation has fallen from 6.7% to 3.3% and that the Fed sees this same core rate achieving its 2% target in 2027. The Fed still wants to talk about. So let’s let ’em talk. I follow the charts and what Wall Street is saying through these charts. I’m now to the point where I’m simply ignoring Fed Chief Powell and his waffling group of naysayers. Wall Street is speaking and THEIR voice is quite clear, unlike the constant Fed waffling that we’ve witnessed for 3+ years and counting.
A few things happen when inflation is considered problematic. First, money rotates into hedges like gold, other commodities, and/or real estate. Second, you sell the dollar as the currency will be negatively impacted by inflation. Finally, you sell growth stocks like CRAZY! Inflation eats away at the future earnings of growth companies and valuations are typically crushed as a result. I’m going to skip gold/commodities as I discussed both in my last article, but let’s take a look at a few charts to see if Wall Street believes inflation is a problem.
Real Estate
Certain areas of real estate, especially REITs, are a nice hedge against inflation as rents will typically be increased during inflationary periods. So this renewed inflation talk by the Fed is surely sending investors into real estate (XLRE), on a relative basis, correct? You be the judge.
Wow, look at that money pour into real estate! <sarcasm>
The U.S. Dollar (UUP)
Next, it’s time to confirm that everyone is selling the dollar, because you don’t want to get caught holding that bag, when the Fed’s worries about inflation prove true, right? Welllllll……
Yep, Wall Street cannot stand the thought of owning the greenback.
Growth Stocks
Holding growth stocks as inflation surges might be the worst possible investment of all. Growth stock valuations get HAMMERED during inflationary periods. We only have to look back at the 2022 cyclical bear market. Do you remember NVDA losing two-thirds of its market cap in less than 11 months? Even AAPL lost nearly 30% in 2022, before rallying strong as inflation peaked. These types of growth stocks will normally be pounded into the ground given rising inflationary expectations. So let’s see how growth (IWF) is faring vs. the benchmark S&P 500 as inflation gets set to rise again (Fed worry):
Once again, you can say how incredibly nervous Wall Street is about the inflation predicament we’re in. <more sarcasm>
MarketVision 2025
I don’t listen to the Fed when Wall Street says not to. I’ll let the media have its fun with the inflation problem we’re up against (ha ha). Over the years, it’s not about what you hear. It’s always about what you SEE (in the charts). Ignore everything else!
On Saturday, January 4th at 10am ET, MarketVision 2025 will begin and I’m planning to lay out 2025 for you in a way that everyone can understand. This is our 6th MarketVision event and I’ve nailed each of the last 5, in terms of market direction, and I’m confident I’ll nail this one too. I’m not a perma-bull. During MarketVision 2022, I suggested the S&P 500 could drop 20-25% before it happened. If I believe we’re going lower, I’ll say it. Unlike the Fed, I have conviction. I also have a very bold call for you this Saturday. Want to join me? We’re making this as easy as possible for you to join. To register for MarketVision 2025 and to gather more information, please CLICK HERE. One more thing. We’re adding a sweet bonus for all current non-members of EarningsBeats.com that register for Saturday’s event. It’s 1 year of EarningsBeats.com membership at no additional cost, a $997 value. Pay for the Saturday event and get a year of membership FREE. It won’t get any better than this.
Happy New Year to ALL! On behalf of EarningsBeats.com, I wish you all a healthy and prosperous 2025 ahead!
Happy trading!
Tom