I can’t say it any more clear.
This is a sucker’s rally.
No question.
And you want to avoid it like the plague.
Because in the next few weeks, this market top will be in, and not be back to those levels for years, maybe even a decade.
It sounds extreme, but it’s just par for the course.
Here’s why…
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The next big move is going to be to the downside.
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Inflation Reading Gives False Hopes
Let’s start with what triggered the biggest single day move since 2020 – inflation.
CPI came in below expectations, though still growing at 7.7% year-over-year. So why did the markets get all excited?
They think it means the Fed will be forced to pivot (stop hiking interest rates) sooner rather than later.
Mind you, the Fed has given them no indication they will pivot after an inflation reading like this. By all estimations, inflation is still well above the Fed’s target limit of 2%. There is talk of the Fed loosening that 2% number quite a bit in the coming months, to slow the pace of rate hikes while inflation appears to be slowing.
Here’s where this all points to more pain ahead for the markets.
Inflation is already cooling off, albeit through natural methods.
The shipping backlogs have been cleared out, the economy is open as opposed to COVID forced shutdowns, and the growth bubble has popped. Those were the main culprits driving inflation.
We’ve seen commodity prices dip in respect to their peak in June of this year.
Now everyone will be taking credit for the decline, from the Federal Reserve to President Biden, but it was already in the making.
Which makes what’s about to come, actually the result of the Federal Reserve mainly due to their war with inflation.
Here’s what to expect…
Federal Reserve Still Waiting for That Crash
Let’s back this up to what the Fed is looking for.
Yes, they are following inflation, which we just discussed hasn’t done enough for them to pivot.
They are supposed to not care about the stock market, which is still down 17% this year, or the bond market, which is weighing on retirees’ portfolios.
They are watching the economy and jobs.
Jobs are showing strength, but when you take that step back, you know this is not a healthy jobs market.
Just look at all the top employers, major innovative tech companies, that are slashing jobs – Meta, Twitter, Peloton, Seagate, Carvana, Snap, Coinbase, Stripe and many more. Even economic bellwethers Apple and Amazon have announced hiring freezes publicly.
These people are going to be looking for new jobs, but not likely at the same level they had before. And jobs data is also being conflicted with the number of workers carrying multiple jobs to make ends meet. With remote work it is becoming increasingly common for employees to have an extra job or two.
The Fed is always oblivious to these underlying trends in the data.
Surface level, jobs are good.
But beneath the surface, it’s a disaster that is about to fall apart.
It happens in every recession and the Fed has been adamant that they are pushing us towards a recession for months now.
It’s no secret.
I urge you not to fight the Fed because they will succeed.
This economy is set to enter a recession (technically, it already has) that will bottom out sometime next year.
For now, just know stocks are headed lower and you want to avoid this suckers’ rally at all costs.
I’m making money on the way up, but I plan to make even more on the way down.
I hope everyone has a blessed Veterans Day today, especially our veterans which make everything we do possible. Huge thanks to our veterans every day, but especially on Veterans Day.
Happy Friday!
Let’s get it!
Chad Shoop, CMT
Editor, Bank It or Tank It ELITE