September 12, 2022
Good morning,
After 3 consecutive weeks of sheer punishment for the equity market following the Jackson Hole speech by Chair Powell in August, sellers took a break last week and the S&P 500 Index rebounded +3.6%.
Maybe last week’s rebound wasn’t just seller’s fatigue. About two months ago, the economics group at NDR (Ned Davis Research) called for a potential peak in inflation using nine economic signals (PMI’s, Wages, Commodity Pricing, Consumption for example). Updated signals this morning suggests to them that inflation is mostly yesterday’s battle. “After another hike and full QT in September, the Fed will be tightening into lower inflation, likely leading to recession” (NDR).
NDR doesn’t look at any economic data that isn’t widely available to all market participants. Perhaps the market is getting the same sense that inflation concerns may be waning soon. That would be good enough for last week’s relief rally, but it may not address the longer-term prospects of a recession.
I suspect the inflation/recession battle between bulls and bears has weeks or more remaining to play out, and volatility will remain elevated. We remain defensive.
Be well,
Mike