Why The Stock Market Going Down Today Makes Absolutely No Sense
The end of days is upon us once again, as yields are surging, with runaway inflation, an economy that is severely overheating, as the stock market tanks. (That is meant to be sarcastic, keep reading)
It has become comical, and one must laugh at how things go from good to bad so quickly. Perhaps it is my imagination, but was it not just in November that everyone was worried that a flattening yield curve was signaling a recession was looming? No, that is right, I’m not crazy.
So what happened the yield curve went from inverting, to out of control steepening overnight, huh? Well, I hate to break it to the stock market, yields have risen for some time now, especially since breaking out at the beginning of January. But only now the stock market is starting to take notice? Yes. What was magically about yields crossing 2.8 percent, besides nothing.
Perhaps it was the job report today that showed wages grew by nearly 3 percent vs. the same period a year. Or maybe it is that the US GDP is tracking at almost 5.5 percent for the first quarter, by GDPNow.
It Is Called Economic Growth
Inflation should be no surprise either, as Oil has been steadily rising, since breaking out sometime in November. The last time I checked Oil prices have a lot of say over inflation.
But it isn’t just Oil, have you seen? Copper has broken out as well.
Late To The Party
The stock market, as usual, seems is a little bit late to the party, and as usual misinterpreting the signals the bond and currency markets are sending, as they did in February of 2016.
Bond yields will continue to rise, and so shall inflation, and wages. Because for the first time in nearly a decade we are starting to see the signs of real economic expansion. Economic expansion and global growth will help corporations earn more money, and should help to lift stock prices.
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Stocks Still Better Than Bonds
Dow Jones S&P estimates that operating earnings will grow by nearly 23.50 percent in 2018 to $153.19 per share while rising another 10.6 percent in 2019 to $169.43.
The last time I checked investing in a 10-year treasury at 2.5, 2.8, or 3.0 percent was admittedly less than the growth outlook for stock prices, and for now, that may be all that matters.
Where We Go
But for the everyone who must know how low the market shall go, it is likely not finished falling, but probably not much lower.
The relative strength index has fallen from nearly 85 to 45 just this past week. My hunch is likely around 2,740ish.
But what do I know… I wrote about all of this happening before 2018 even started.
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Tags: #stocks #inflation #yields #rising #oil #wages