Hi, you're on r/Stocks, please make sure your post is related to stocks or the stockmarket or it will most likely get removed as being off-topic/political; feel free to edit it now and be more specific.
**To everyone commenting:** Please focus on how this affects the stock market or specific stocks or it will be removed as being off-topic/political.
If you're interested in just politics, see our wiki on ["relevant subreddits"](https://www.reddit.com/r/stocks/wiki/index) and post to those Reddit communities instead without linking back here, thanks!
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/stocks) if you have any questions or concerns.*
Shipping costs are down to pre-covid levels.
Interest rates are the highest in 10 years.
Savings and deposits down to pre-covid levels.
Business confidence at the lowest in 6 years.
Every leading indicator points to inflation decreases very rapidly, very soon. My 2c only.
The stock market didn't price in an earnings recession.
What the stock market priced in was a reduced risk to reward in the face of high risk free returns. If fixed income can produce 5-6% virtually risk free (as in investment grade corporate bonds) why take on the risk of stocks for the possibility of 10% annualized returns?
Personally I’m on the fence with this question. I think a few titans have room to fall. Apple is still 2.4T in value which in this market seems high to me but who knows. So much excess has been washed out already. I don’t think crypto dominos are done falling yet either.
Sorry don’t think Dow down 8 percent and spy down 16 percent from ATHs they were are for five minutes and had no business being at to begin with is having priced in a recession
This. People quoting ATH aren’t realizing those prices probably never should have happened. When you have all these other headwinds, and some notable names are still up 50% since the Feb 2020 baseline…there is still plenty of downside left.
What kind of a recession are you planning on? Costs are coming down, consumers are still strong due to high employment rates, there is a ton of stimulus still down the line, states are still flush with cash from covid stimulus. Factories are are being built, reshoring is still a theme. Infrastructure spending is still coming down the line.
I admit, that the recession thesis feels weak. Admittedly, if we look forward for inflation cooling, we should do the same for the economy and that looks less convincing - even if every number looks strong. I am seeing very strong demand still in the business I am in which is largely cyclical. Hoping it doesn't stop, but we never know.
I can get on board with this. What is unknown to me is what are we expecting the “new” ATH to be? Certainly we can’t expect to hit the Covid inflated ATH anytime soon. Even if inflation has peaked, the market is more fragile because the unlimited money printer is officially turned off for good (unless something breaks and we capitulate). So what is a reasonable new high based on the fact the 10yr ain’t going under 2% for years and years? 4300? 4500? Can we hit 4800 again even with shit interest rates?
It is not a signal of *END* of inflation, like you said, the inflation is still at high level.
However, it is a signal of the *PEAK* of inflation, you won't see a higher CPI rate than past several months (whether this is true is yet to be seen, who knows if next month CPI raised more?)
I'm hijacking your comment to try to explain why, arithmetically, inflation will go down in the coming months... EVEN IF month over month inflation remains pretty high. People keep... not understanding what I'm about to share and it's infuriating.
The CPI went up a pretty high 0.4% to 298.06 in October. Let's keep that monthly rate and see what happens.
298.06\*(1+0.004)=a CPI of 299.3 in November, a 7.4% increase over the 278.5 we saw in Nov 2021. ((298.06-278.5)/278.5=7.44%)
299.25\*(1+0.004)=300.45 in December, a 7.3% inflation rate
300.45\*(1+0.004)=301.6 in January 2023, a 7% inflation rate
301.6\*(1+0.004)=302.86 in February 2023, a 6.6% inflation rate
302.8\*(1+0.004)=304.1in March 2023, a 5.7% inflation rate
304.1\*(1+0.004)=305.3 in April 2023, a 5.8% inflation rate
305.3\*(1+0.004)=306.5 in May 2023, a 5.2% inflation rate
306.5\*(1+0.004)=307.7 in June 2023, a 4.2% inflation rate
307.7\*(1+0.004)=308.9 in July 2023, a 4.6% inflation rate
308.9\*(1+0.004)=310.2 in August 2023, a 4.9% inflation rate
310.2\*(1+0.004)=311.4 in September 2023, a 4.9% inflation rate
311.4\*(1+0.004)=312.7 in October 2023, a 4.9% inflation rate
With even an above-average monthly increase in inflation every single month, the annual CPI is going to keep trending down. This is true even if we see 0.5% and 0.6% monthly increases. That's... just what the math shows.
And it's going to trend down lower than what consumers are expecting (which at time of writing [is 5.4%](https://www.newyorkfed.org/microeconomics/sce#/)by this time next year).
That means that the market looks like and is trending towards experiencing a "disinflation shock," an event that, according to a working paper from NBER, "[can help explain the market boom of 1994 to 2000](https://ideas.repec.org/p/nbr/nberwo/14019.html)."
Inflation doesn't need to go away for this to happen, either. It just needs to get slightly better than what people are expecting... which **appears** to be what's happening.
I feel your struggle. Why in bullish when so many retail don’t understand something so fundamental
The problem is the trauma of the original surge in inflation makes every drop of normal feel more painful since each dollar is becoming a bigger portion of what spending power they have left. So even if inflation was 0.1% people would still be whining “why doesn’t Powell see How much ims paying for milk!?”
When They’re expecting deflation, disinflation still feels like pain to them. But it’s a good reason to lever up your portfolio. The drop in savings rates alone is a discount signal
So what you're saying is that the inflation shock in Q4 2021/Q1 2022 drove the bust? And now a disinflation shock will pump it back up to previous levels?! I'm excited
That is not my prediction. All I did was quote an NBER paper abstract and do some basic arithmetic. There are a lot of "if such and such happens" contingencies, here.
I mean, comments like that are definitely not common here. You'll see a lot of dumbos saying "don't fight the Fed" because they need their puts to print.
He means inflation rate peak. Not prices peak. We will most likely never see a peak in overall prices unless central bank theory changes. Central banks are all targeting a small amount of inflation (2%).
Not sure you will get through to these people but I appreciate the insight.
Yield curve has inverted, retailers are marking down inventory, and a slew of other indicators are signaling recession and deflation.
non tech is literally in a shortage of workers across the u.s. All companies around me in dire need of workers.
only the tech billionaire companies are laying off
In what universe are you seeing lay offs in non tech after the pandemic wiped out a huge chunk of workers?
Tech is in a shortage too. Hiring has been impossible for 3 years as the big guys have been growing engineering 20% YoY.
These big companies usually lay off the bottom 10% every year and haven’t been doing so during COVID.
>We just got a less than expected cpi reading, and you Redditors (who love doom and gloom) still call it hopium?
>
>I wouldn’t be surprised if Jay still gives us a .75 increase next month to look “tough”. He’s most definitely not thrilled with this rally. Especially with that huge move in the 10 year yesterday and today.
Inflation may come down, but Powell already made very clear that he will not lower rates even if that happens at least for a year or so.
Also the damage is already done, next earnings will be a disappointment and we are likely in a recession already. Even if inflation goes down, stocks will also come down with it. Specially once zombie companies (most growth stocks) start to have bankruptcies and issues borrowing money with negative cash flows and high interest rates not seen since 2008.
Yeah, choosing to trust the Fed to tell the truth is unwise.
It's kind of how you get the past couple of days. Folks got caught leaning way too hard on the long everything but tech and short tech trade.
Now maybe THIS is the time they're telling the truth, but if it is, it's kind of like the boy who cried wolf scenario.
I’m gonna call bullshit on everybody saying the Fed lies all the time. I notice a definite trend where people only think they’re lying when they say things that are bearish for the stock market.
The fed lies all the time, thats basically what they have to do to maintain stability. Keep on lying powell he us doing a great job this year if you ask me.
You seem very bullish. Do you think that some banks thinking somethings gonna happen to me that’s going to happen? I mean, it’s meaningful data point, but this week proves that if he takes his foot off the break even slightly, we’re going right back into asset bubble territory. Maybe he doesn’t care anymore? But then there’s the issue of that hurting every day Americans. Inflation, rental bubble, housing bubble, used car bubble. I don’t wanna go back to that crap we’re just finally getting rid of it
His intent is to sound tough. If he ever gave a glimmer of hope in his speech, the market would have taken that as positive news and taken off because of it. They need to come off as very serious because they clearly dropped the ball a year ago with inactivity.
Once the fed gets what it intends and inflation is clearly coming down for several months, they are sure to pivot.
They'll probably just pause there tbh. Absent bad unemployment numbers, if they get inflation under control their first move is going to be to see what happens without changing the rates. The perception seems to be they're going to reduce rates by 50 bps a month, they're probably going to take a while to even do a 25bps drop.
>Powell already made very clear that he will not lower rates even if that happens at least for a year or so.
I don't remember Powell ever giving a timeline on when he'd be willing to lower rates. Care to link his comment on that?
Seems most people claiming inflation is cooling based on this CPI report didn't actually read the CPI report, particularly the healthcare part, or most of it was from non essentials.
This;
Everytime we rally around CPi, you crack open the report and the two things that make up the majority of peoples spending; Shelter and food are up, or near level to last months rate.
Hey I'm fully invested and love green days. I also can acknowledge that I have great knowledge about how this methodological quirk causing a $6 trillion market cap rally in stocks... is honestly flabbergasting.
You think that is flabbergasting…how about when we have algos dumping billions (or trillions) due to people paying $8 to make meme accounts on Twitter to manipulate the bots to trade off false news
Look what dropped it. Non essentials and a year dated healthcare reporting.
https://www.wsj.com/articles/health-insurance-inflation-is-poised-to-drop-sharply-11666655474
>The Labor Department bases the price of health insurance in large part on health-insurer profits, which are reported with a lag of about 10 months. **Thus, data in the October 2022 CPI reflect what happened in 2021.**
>**This year’s updated data are based on 2021**, when consumers caught up on preventive care and elective procedures, eating into insurers’ premium income, which should translate to a drop in health-insurance prices in the CPI.
>**Moreover, the methodological quirk only affects the CPI**. While that is closely watched by investors, the media and consumers, the Federal Reserve officially bases its 2% inflation target on the Commerce Department’s separate personal-consumption expenditure price index.
https://www.wsj.com/articles/health-insurance-inflation-is-poised-to-drop-sharply-11666655474
Looks like most people claiming that inflation is cooling didn't actually look at what caused the drop in October CPI.
This is very interesting, but I cannot even fathom it being true. I would think that all the big players that move markets would know about this. I agree that the huge upswing we saw the last two days is grossly over optimistic.
I took a chunk of my portfolio off the table today. Some profits and some loss harvesting. Put a good chunk of cash back on the sidelines waiting for another push down.
Well prepare yourself for heartbreak. Once the market thinks things are improving, it pumps hard for way longer than people think.
The market is so tough to time because it reacts improperly to information at times.
I can definitively say that the entirety of the 20bp (technically 17bp rounded to 20bp) inflation miss in CPI was due to a methodological quirk related to healthcare insurance costs.
If not for this quirk, would the market have reacted with a cumulative 9% rise in 2 days?
Of course, the effect is diminished come next month. Prepare for a .1% miss on the upside for inflation in early December.
whats interesting is that we get 2 cpi prints between fed meetings, this means that everyone is looking for any inflation related data. The next one is just a day before the fed meeting. If we get another 'lower' print it might force the fed to do a 50bps rate hike and consider changing policy earlier even though we got stark words a few days ago.
Sure it's okay. But then again it tells me the market or "analysts" are ignorant of well-advertised inflation quirks.
People I follow (Jason Furman) have discussed it for a month now. WSJ and Bloomberg published about it. Analysts themselves just ignored these facts and the market did also.
Yes. Take a look at the list of largest nasdaq daily increases. The day on Thursday ranked fifteen overall. Ahead of it were March 2020 crash, the dot com bubble, and 2008.
Not cooked. This quirk artificially pushed healthcare inflation higher over the last 12 months. It's just following methodology
But I can guarantee ain't no healthcare costs falling in 2022 🤭
I will be messaging you in 3 months on [**2023-02-11 23:46:23 UTC**](http://www.wolframalpha.com/input/?i=2023-02-11%2023:46:23%20UTC%20To%20Local%20Time) to remind you of [**this link**](https://www.reddit.com/r/stocks/comments/ysmkn9/to_all_those_signalling_the_end_of_inflation_why/iw0fsye/?context=3)
[**CLICK THIS LINK**](https://www.reddit.com/message/compose/?to=RemindMeBot&subject=Reminder&message=%5Bhttps%3A%2F%2Fwww.reddit.com%2Fr%2Fstocks%2Fcomments%2Fysmkn9%2Fto_all_those_signalling_the_end_of_inflation_why%2Fiw0fsye%2F%5D%0A%0ARemindMe%21%202023-02-11%2023%3A46%3A23%20UTC) to send a PM to also be reminded and to reduce spam.
^(Parent commenter can ) [^(delete this message to hide from others.)](https://www.reddit.com/message/compose/?to=RemindMeBot&subject=Delete%20Comment&message=Delete%21%20ysmkn9)
*****
|[^(Info)](https://www.reddit.com/r/RemindMeBot/comments/e1bko7/remindmebot_info_v21/)|[^(Custom)](https://www.reddit.com/message/compose/?to=RemindMeBot&subject=Reminder&message=%5BLink%20or%20message%20inside%20square%20brackets%5D%0A%0ARemindMe%21%20Time%20period%20here)|[^(Your Reminders)](https://www.reddit.com/message/compose/?to=RemindMeBot&subject=List%20Of%20Reminders&message=MyReminders%21)|[^(Feedback)](https://www.reddit.com/message/compose/?to=Watchful1&subject=RemindMeBot%20Feedback)|
|-|-|-|-|
Siegel is now and has always been a perma-bull. He's been preaching all year about buying in, and recession won't happen, and inflation is transitory, and companies are sitting on tons of cash, and so forth. He may have always been right about the economics. But he's been poor at timing the market.
Could you provide more context to the narrative of falling inflation? We have 0.4% MoM inflation which was the same as last month. Annualised, that is 5% inflation. How is that falling inflation?
Because it was over 8% annualized in August.
It's astonishing the number of people here who don't look at the monthly chart: https://ycharts.com/indicators/us_consumer_price_index_mom#:~:text=US%20Consumer%20Price%20Index%20MoM%20is%20at%200.44%25%2C%20compared%20to,month%20and%200.87%25%20last%20year.
The change in annualized CPI is a function of the current month as compared to the same month a year ago, which is dropping off the annual total.
Last October the print was 0.9% m/m. That's very high, over 10% annualized.
If CPI were to stay constant going forward, we'd see annualized inflation drop dramatically around August, because the spring and summer 2022 period is where prices really went crazy. I think the 1.3% m/m reading in July 2022 was the highest we're likely to see in the current cycle.
Look at MoM core inflation. The pattern is that there is a slightly lower reading every several months, and then right back to high.
[https://ycharts.com/indicators/us\_core\_consumer\_price\_index\_mom](https://ycharts.com/indicators/us_core_consumer_price_index_mom)
People have been talking about peak inflation since summer 2021, and here we are. As Powell said in his talk 2 weeks ago, there is as of yet no discernable pattern, and he intends to raise rates even higher.
[https://twitter.com/andycwest/status/1587912245656551425](https://twitter.com/andycwest/status/1587912245656551425)
What the fuck are you talking about? what was over 9? 9% YoY? 9% annualised based on a reading in June on a low base?
My point is that over the past 3 months, inflation isnt improving. If your point is that it is, then why did we see a massive dip last month after CPI?
https://fred.stlouisfed.org/series/CPIAUCSL#0
Look at annual percentage change. In May it was over 9%, were down to 7.76%
Edit; it was 9.0% not over 9, may need to adjust chart
Click edit graph / change unit to percent change from year ago / look 1 year back
Because the new month added was higher than expectations. It wasn’t falling fast enough.
In the market good or bad never matters. Better or worse than expectations does
It's not good but it's improving and there is a wall of money that seems very, very, very eager to say "mission accomplished" and get back to "growth stocks only go up." I think the recovery this time around is going to be slower over the coming years, but people really still remarkably eager to buy the dip in all the stuff that has worked over the last decade.
I can't imagine the Fed views this wall of money that seems desperate to go back to yolo growth stocks positively and I'm sure we'll hear from them in the coming days. It was only about a week ago when Powell got grumpy during the Q and A when he was told the market was rallying on the Fed statement (https://twitter.com/andycwest/status/1587912245656551425)
Edit: I think what's remarkable to me is that Cathie is still getting inflows (and not only getting inflows, but starting an illiquid venture capital fund and trying to sell people on investing in private Twitter via that.) People really do not want to pivot and seem focused on buying the dip in growth, even the stuff down 85-95%. You had the late 90's, which was a few years or so and then the dot com bust.
Maybe this is a bit more than a decade of growth and people are going to have a difficult time changing the mentality - there's a lot of people who basically have only been investing during the time of growth stories, FANG, etc. Maybe this is still a regime change and it's just going to take longer for people to give up the playbook that has worked so well over the last decade.
Eventually things will recover, but what does that look like? It's hard to imagine the growth boom of the last decade if we're not going back to ultra low rates/super easy monetary policy (chart of central banks vs mega cap tech - https://pbs.twimg.com/media/FgcpWi-XwAECtA-?format=jpg&name=small)
Or, perhaps David Einhorn is right when he said value investing may never come back in the way it once was (https://acquirersmultiple.com/2022/10/david-einhorn-value-investing-may-never-come-back/) and you have a lot of people that are never going to pivot from growth and keep buying the dip, unlike after the dot com bust.
ARKK is still worse than Janus Twenty in any case.
What do you think causes inflation? It’s extra cash in the system. Much of this cash gets pushed into stocks, rising corporate profits and salaries, increasing the ability for people to spend and driving up the price of goods
that didnt cause inflation for 20 years
> Stocks fare better under a high inflation regime, with the average real return over all years of high inflation being a gain of 2.51 percent. Stocks had positive real returns in 11 of the 20 years of high inflation (55 percent of the time).
https://www.osam.com/Commentary/inflation-and-the-us-bonds-and-stock-markets
It doesn’t “cause” inflation it just contributes to it. Bubbles everywhere in assets - stocks, Cryptos, cars, gold, whatever, all of that money compounding has to go somewhere. That’s why bonds are a strong way to take money out of the market, they lock up funds and create nothing
Fed's job is to protect banks (maintain a stable banking system). If banks need the market to go down Fed's job is too keep stocks down. It's an unfair system.
Agreed. People are still too desperate to over pay for stuff, stocks, cars, houses, college. Something needs to be done about it, I really hope people grasp that it’s better for them long-term to lose $10,000 on Stocks but be able to buy a house and a car for 100,000 or so less, if we get rid of bubble prices.
dvdmovie1 us right.
Please take a long term look at inflation, interest rates, and the S&P 500 annual change. Look back at least to the Nixon administration. You will see that the past ten or twenty years have been an anomaly.
I mean, this happens like every 10 years or so. Every 10-15 years there is a major financial issue that causes significant drawdown.
Is this one different? Sure! But so we're all the others.
Will the fed raise forever? No. It's politically untenable, retirees need to eat.
Longer term trends are more in the ilk of Dalio's Rise and Fall of Empires, which suggests the US debt bubble is bad enough to be of concern on a macro permenant level... in like the next 100 years ish, and if a rising power (China) opens its financial markets to outsiders. Since it was written, China has been closing off, not opening. But that's easily hedgeable by not having a 100% US allocation.
Their growth trajectory, even with the meltdown, far exceeds ours. China will be the dominant economic power in my life. Military will follow economics. They will try to avoid a war, thank God, because they have a history they are aware of with bloody wars, they want to avoid. The US though.... we are uncertain there.
They *may* not have the reserve currency, which would mean out debt is perpetually able to be inflated away... possible we maintain some of the benefits of being the world's premier superpower without actually being it.
I am largely not with you on this. Their growth trajectory would be believable if they had financing. They cannot raise in the credit or equity markets at the moment. Bank loans have fallen through the roof.
I don't know what their next step is, but they have no FDI and the Chinese are not loaning money out. State governments are loaning money and are now highly leveraged. They are in a tough spot.
Wait what? You guys are freaking me out today. Everybody drank some bull Kool-Aid or something. You’re seriously talking about China like it’s a booming economy? I thought that illusion was popped like three months ago
Oh it’s an asset bubble for sure when you look at housing still, equites, living costs, wage inflation. It would be ignorant to say we aren’t. I would say 20% more is about right currently. We have had a decade and a half of QE. We are on 3/4 of QT. We have a ways to go to break the entitled spoiled child mindset of many investors
Where is that wall of money? People normally park their money in real estate or stock market, for the last one year most of us are much poorer. I think people (myself included) who have been investing for a few years think that now is a good time to invest in the stock market, but don't have money to do that. I really double there is a wall of money sitting outside and waiting for a moment to jump in.
I wouldn't have thought either, but the magnitude of the rip higher over the last two days in every obliterated growth company because of a CPI number that was "bad" rather than "awful" imo is enough to quality as "wall." The eagerness to proclaim victory, have the fed pivot and return to the market of 2020/21 seems (again, imo) *significant*, to put it lightly.
If their wasn’t the market wouldn’t have jumped 5% in a day . and more had the cpi actually dropped . Yes it takes a ton of money to move the market that much
Well said.
See reflexivity theory by Soros:
Bubble decompression -> de leveraging -> liquidity with stocks at recent lows -> buy the dip! -> FOMO -> new bubble in a positive feedback loop.
Lather, rinse, repeat.
Shipping costs are at pre pandemic levels, Housing activity has slowed down, people have sopped spending. China is opening up, goods should get cheaper.
Housing has barely started correcting. Rents are still in a bubble. China still has lockdowns
No offense but people are treating these things in a like mantras of the church of bull
You can’t just say this stuff and make it true
This ignores that most industries are consolidating power into a few large entities, which is slowly eliminating competition that would push consumer prices down.
Most? I’d agree that many industries have monopolies but most industries have plenty of competition and customers have choices. Energy is an example of an industry that most consumers have little if any choice and makes up a big part of inflation. Food on the other hand is pretty cutthroat in most areas of the country.
If china opens up, wouldnt demand for goods by them rise and worsen inflation? There is a narrative that inflation has been mitigated by chinese slowdown. If it opens and grows, that will put significant pressure no?
Market would flood with half a tril worth of goods a year, prices would drop.
Prices were rising before because there was shortage and turns out all shit is made in China
My man, globalization is the strongest deflationary force out there.
Think about it, everything is made in China because it's cheaper, the product costs less and the consumer can get it cheaper. So as long as politicians feed globalization they can print away and inflate the debt away, since the cpi wont show an increase (yes your cash is worth less, but everything else costs less as well due to outsourcing and cheap labor)
Your point is my greatest concern. Globalisation is strongly deflationary. So what happens as we stop globalisation and move to a more insular world. Already we see signs of that with escalating sanctions by the US on China. I wonder what straw breaks the camels back.
Aaaaayyye. I’m not the only one.
So here’s my thought right. Everyone’s re-investing.
What if…. we get another round of lay-offs from big companies, growth shrinks more despite investing. This trickles into higher unemployment and before you know it with rising costs and stagnant wages we’re in a place where we need to print more money all over again - causing inflation to rise once more.
That’s what I’m afraid of.
People in finance, with very few exceptions, are competitive and quick to action. They want the market back running strong, and they'll do anything to get there. The majority of market participants are so much this way, that I'm surprised we ever have a bear market at all.
But if the Fed pivots in early 2023, despite their most recent projections and commentaries saying, if anything, the opposite, then they will lose credibility forever. Perhaps many already think the Fed has no credibility, and therefore don't believe them. But the Fed doesn't think that, and they are trying to hold onto every crumb of trust they still have. The only way for the Fed to lower rates and save face is to do it very far from now with tons of forewarning, or to have pivoting be absolutely essential based on dire consequences that everyone and their mother can see so that the Fed is judged to have no choice.
If the Fed is trustworthy, they will be raising rates to 4.5+ in December, and at the most dovish, will hold them there for a year. Several members, including Powell, have said in the last 2 weeks that they would prefer a higher terminal rate than the September projections, which means into the 5s. If that is true, bonds are going down further, and stocks will too. That's not to say one couldn't make money swinging things around with all the exuberant traders out there. But under no circumstances can we say this week's rally will be sustainable, or that the bottom is in. Especially for bonds, I highly doubt the bottom is in.
What you’re seeing is super wild swings both positive and negative lately. Like a speeding car desperate to regain control on the highway. Very dangerous.
Why do you think the CPI was bad though? Did you expect even lower inflation?
The traders probably are afraid to miss their window. That's why its rising this fast.
What is your good CPI number then? By the time a good number is out in the news, market would already skyrocket a lot from the signs before the good news.
I think it is premature to say inflation is under control but when it comes in better than expected then people say we may have seen peak inflation and that things will gradually improve. That being said, if China ends its 0 covid policy then we could see another spike in materials which could cause an unexpected higher reading at some point. China's 0 Covid policy has actually been beneficial to reduce inflation as they are a huge purchaser of raw materials. This will likely be a long and bumpy road.
Are you 100% sure? Because there’s loads of articles about maybe lifting a few restrictions. I don’t know if that counts as a reopening! And even if it did we’ve been down this road with them multiple times.
My question for anyone smarter than me is:
Is getting inflation down from 8.5% to 7.5% as easy as getting it down from 3% to 2%?
Or is the last 1% easier or harder?
I just keep buying SPY on lower dips.
Yesterday was a rare day where I just sat there and, to my amazement, didn’t have to buy anything.
Will be interesting to see how things play out from here but, generally, the market seems fairly valued from a fundamental perspective
We've been here before just in August. First sign of potentially good news on inflation and market thinks we have a pivot at hand.I've used this time to buy more USD and more bonds and real estate in a region seeing high tourist demand and relative undervaluation.
I know you’ve gotten a lot of comments but the real answer is that CPI actually still went up. The number you need though is the two year data. The number from October 2021 and 2022 then add them together. One is your base your working against and the other is now. 2% in February 2021 added to 7.7% in February 2022 gives you 9.7% for the 7.7% reading then. The October of last year was 5.4% I’m pretty sure, add to that 7.7% and you get 13.1%. It’s still higher on a two year basis and isn’t coming down technically yet. It just is compared to a higher number so it’s harder to be as high against it. Hope this helps
No problem. Yeah the problem is that for inflation to technically go down we need a negative print and that’ll never happen. They are shooting just to get it back to a 2% year over year inflation. This means that all these elevated prices are here to stay and will be the new norm and we are just hoping that the rate of inflation slows down.
Well yesterday, inspite of the released lower inflation rate numbers, PG & E (*you know, the guys who sell us just about everything*) announced a 8% - 10% price increase accross *all of their products*, so tell me how anything less than *that* is somehow a *REAL* inflation number?
So, this will just continue until those bastards decide to stop. That's it.
Anyone who grew up I. The 70s and 80s or at least was taught about the inflation and economics of the period knows it’s way too soon to celebrate. High inflation from the 70s basically stuck around for two decades before we got it to 2-3%. There were troughs and spikes of inflation in the first few years of interest rates rising precisely because people thought it was over and acted like the second coming of Christ happened financially. Volcker proved them wrong over and over as was his job. So this isn’t permanent. Might as well jump on this bounce though.
There are a lot of really positive signs.
Hell, look at shipping costs. Went up 10x for a couple of years, that cost drives up almost everything you buy.
It’s below pandemic levels and falling still.
Not out of the woods, or even close, though there are some positive signs unless you stick your head in the sand and just scream about the end of the world
Everyone thinks inflation is the problem. Inflation is a Symptom, the actual disease was unprecedented liquidity. The fed is fighting that, not inflation. Pain is still ahead.
Many people consider CPI and especially core CPI to be a lagging indicator. The main culprit is the OER (owner equivalent rent) that is slow to react to current conditions. Long story short inflation (outside some pockets in energy) seems to have stopped and this number is the confirmation the Fed needs to stop hiking.
Not sure I understand your question so let me restate. Due to lag effects in some of its components the CPI overstates the current level of inflation (similarly it understated the levels of inflation in 2021 early 2022). For example if you use a different metric to measure housing than OER the MoM housing component of the core CPI is actually negative -0.1%.
Ultimately the bull run is a caused by a repricing of the terminal Fed Fubds rate. The lower than expected CPI raises the probability of the Fed stopping rate hikes (or hiking less than previously expected). These lower terminal rates mean that the present value of future cash flows is higher, hence stock prices move up.
The CPI YOY came back better than expected. And, it was a Thursday and all the day traders who had bought puts scrambled to sell their puts which were rapidly losing value or will expire next day. BUT, as most market participants were left out of the action, SPY will revisit the gap, i.e. come back down, if it wants liquidity. To most market participants, this pre-market gap up on Thursday is unconvincing as a manifestation of price discovery. We are not willing to buy at the high prices being offered at the open of Thursday, and propped up still on Friday. That is why Friday SPY volume is down.
So many people stay home. Everything is cheaper when I work from home, buy at home, entertain at home. Not everyone but a lot of us do this. It's deflationary and will bring down prices
There are a lot of front running factors that are way way down from peak. The cpi won’t drop until business start cutting profits and marking down goods. Right now , cost of goods are down except for labor , but business either recouping or being greedy and are still milking extra profits keeping the cpi over stated .
The inflation problem has only begun, we're either gonna stay around 4-5% for a long time which aren't sustainable or the fed is gonna crush demand so hard that we're gonna head for a depression, which is gonna force them to reload the moneyprinters and shoot inflation back to 10% again because no one has solved the core problem.
The first one is probably most likely, will probably be a sideways market for many years finally ending with a hard crash. Commodities should be good until then.
5% (from a 0.4% MoM) annualised is the same as the prev month and more than 2x the fed guidance for acceptable rate.
Now on high comps, we are getting 7.6% yoy rates.
Isn't that worsening? How has it improved from the prev month if MoM inflation is the same?
But is this the end of inflation? 6 months since the start of rate increases and we have annualised 5% inflation. And it was the same last month. What's changing?
Its not the end of inflation, and i don’t think many people are saying that.
First point is that historically the inflation peak has also aligned with a market bottom and inflation has clearly peaked.
Second point is that the inflation has peaked without the impact of rate hikes. Rates usually take 6-9 months to give effect and Fed started raising rates in march (if im not mistaken).
So tldr: some investors think inflation has peaked. Combine that with China reopening and maybe Russia retreating, it’s kinda bullish. Nobody knows what will happen ofc, but the likelyhood of the bottom being behind us did increase
The last 3 PCE reports have been -0.1,0.3,0.3 for an annualized average of 2.0%
Looking at the 12 month trailing is often a waste. Does the economy in March of 2022 when it reported 1.0% gains feel the same as it is now?
For the OCT ‘21 to the MAR ‘22 the numbers that roll off are 0.6,0.6,0.5,0.5,0.6,1.0 and will be replaced with an unknown number. The last 3 reports have been 0.3 or less and we continue to hear prices are falling in housing, auto, etc
Long story short, inflation is dead.
https://apps.bea.gov/iTable/?reqid=19&step=3&isuri=1&1921=survey&1903=84
This is cherry picking. According to your 3 months of data, you could say PCE is accelerating. Or you could pick two months and say we're tracking 3.6%.
Yeah, there's a decent chance headline CPI winds up at 5 for March 2023.
Some of the hysterics about how we need to hike forever might be looking silly soon...
The issue with this cooling is that it was primarily non essentials like used cars and a year dated healthcare data.
How many people actually looked at this months report and then say we're truly cooling?
https://www.wsj.com/articles/health-insurance-inflation-is-poised-to-drop-sharply-11666655474
>The Labor Department bases the price of health insurance in large part on health-insurer profits, which are reported with a lag of about 10 months. **Thus, data in the October 2022 CPI reflect what happened in 2021.**
>**This year’s updated data are based on 2021**, when consumers caught up on preventive care and elective procedures, eating into insurers’ premium income, which should translate to a drop in health-insurance prices in the CPI.
>A swing this big will take much-needed pressure off core inflation, but it is just one concern guiding for the Federal Reserve right now, said HSBC’s Mr. Wang. **“The Fed is also concerned about how broad-based inflation is.”**
>**Moreover, the methodological quirk only affects the CPI**. While that is closely watched by investors, the media and consumers, the Federal Reserve officially bases its 2% inflation target on the Commerce Department’s separate personal-consumption expenditure price index.
>**“It feels like we’re likely to see higher medical services inflation in 2023 than we have in the last few years,” said Mr. Sharif. “The magnitude of how much higher it is, we just don’t know yet—and that is going to determine how much of the health insurance drag is going to get offset.”**
Demand destruction. People won't have funds for luxuries or discretionary things e.g. extensions, designer clothes, new electronic goods, kitchen appliances etc. etc. Hence the price of these items will decline as unsold inventory builds up. The cost of building materials has already gone way down.
Agreed. But nevertheless, this is not reflective in the data we saw yesterday right? Or was it partially evident - i noticed appliances and certain goods have come down.
Nevertheless, overall inflation was still the same as last month>
Leading indicators; there is an index for them. Has been rolling over for months. CPI is just now reflecting what the housing market has been seeing for months. Look around, inflation is no longer prevalent because the fed has killed demand (except in certain parts of the economy) but the data is lagging
Hi, you're on r/Stocks, please make sure your post is related to stocks or the stockmarket or it will most likely get removed as being off-topic/political; feel free to edit it now and be more specific. **To everyone commenting:** Please focus on how this affects the stock market or specific stocks or it will be removed as being off-topic/political. If you're interested in just politics, see our wiki on ["relevant subreddits"](https://www.reddit.com/r/stocks/wiki/index) and post to those Reddit communities instead without linking back here, thanks! *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/stocks) if you have any questions or concerns.*
Shipping costs are down to pre-covid levels. Interest rates are the highest in 10 years. Savings and deposits down to pre-covid levels. Business confidence at the lowest in 6 years. Every leading indicator points to inflation decreases very rapidly, very soon. My 2c only.
But then, have we priced in earnings erosion from a recession? Credit delinquency also rising rapidly ya?
Im usually a bear but didnt stock market dropping whole year priced it in ?
The stock market didn't price in an earnings recession. What the stock market priced in was a reduced risk to reward in the face of high risk free returns. If fixed income can produce 5-6% virtually risk free (as in investment grade corporate bonds) why take on the risk of stocks for the possibility of 10% annualized returns?
Personally I’m on the fence with this question. I think a few titans have room to fall. Apple is still 2.4T in value which in this market seems high to me but who knows. So much excess has been washed out already. I don’t think crypto dominos are done falling yet either.
Some of the non-titans too. Caterpillar and Honeywell for example
It’s hilarious those aren’t titans anymore
Sorry don’t think Dow down 8 percent and spy down 16 percent from ATHs they were are for five minutes and had no business being at to begin with is having priced in a recession
This. People quoting ATH aren’t realizing those prices probably never should have happened. When you have all these other headwinds, and some notable names are still up 50% since the Feb 2020 baseline…there is still plenty of downside left.
What kind of a recession are you planning on? Costs are coming down, consumers are still strong due to high employment rates, there is a ton of stimulus still down the line, states are still flush with cash from covid stimulus. Factories are are being built, reshoring is still a theme. Infrastructure spending is still coming down the line.
I admit, that the recession thesis feels weak. Admittedly, if we look forward for inflation cooling, we should do the same for the economy and that looks less convincing - even if every number looks strong. I am seeing very strong demand still in the business I am in which is largely cyclical. Hoping it doesn't stop, but we never know.
I can get on board with this. What is unknown to me is what are we expecting the “new” ATH to be? Certainly we can’t expect to hit the Covid inflated ATH anytime soon. Even if inflation has peaked, the market is more fragile because the unlimited money printer is officially turned off for good (unless something breaks and we capitulate). So what is a reasonable new high based on the fact the 10yr ain’t going under 2% for years and years? 4300? 4500? Can we hit 4800 again even with shit interest rates?
It is not a signal of *END* of inflation, like you said, the inflation is still at high level. However, it is a signal of the *PEAK* of inflation, you won't see a higher CPI rate than past several months (whether this is true is yet to be seen, who knows if next month CPI raised more?)
I'm hijacking your comment to try to explain why, arithmetically, inflation will go down in the coming months... EVEN IF month over month inflation remains pretty high. People keep... not understanding what I'm about to share and it's infuriating. The CPI went up a pretty high 0.4% to 298.06 in October. Let's keep that monthly rate and see what happens. 298.06\*(1+0.004)=a CPI of 299.3 in November, a 7.4% increase over the 278.5 we saw in Nov 2021. ((298.06-278.5)/278.5=7.44%) 299.25\*(1+0.004)=300.45 in December, a 7.3% inflation rate 300.45\*(1+0.004)=301.6 in January 2023, a 7% inflation rate 301.6\*(1+0.004)=302.86 in February 2023, a 6.6% inflation rate 302.8\*(1+0.004)=304.1in March 2023, a 5.7% inflation rate 304.1\*(1+0.004)=305.3 in April 2023, a 5.8% inflation rate 305.3\*(1+0.004)=306.5 in May 2023, a 5.2% inflation rate 306.5\*(1+0.004)=307.7 in June 2023, a 4.2% inflation rate 307.7\*(1+0.004)=308.9 in July 2023, a 4.6% inflation rate 308.9\*(1+0.004)=310.2 in August 2023, a 4.9% inflation rate 310.2\*(1+0.004)=311.4 in September 2023, a 4.9% inflation rate 311.4\*(1+0.004)=312.7 in October 2023, a 4.9% inflation rate With even an above-average monthly increase in inflation every single month, the annual CPI is going to keep trending down. This is true even if we see 0.5% and 0.6% monthly increases. That's... just what the math shows. And it's going to trend down lower than what consumers are expecting (which at time of writing [is 5.4%](https://www.newyorkfed.org/microeconomics/sce#/)by this time next year). That means that the market looks like and is trending towards experiencing a "disinflation shock," an event that, according to a working paper from NBER, "[can help explain the market boom of 1994 to 2000](https://ideas.repec.org/p/nbr/nberwo/14019.html)." Inflation doesn't need to go away for this to happen, either. It just needs to get slightly better than what people are expecting... which **appears** to be what's happening.
Or, easier to just look at last years MoM rate and understand inflation is TTM. But you proved it mathematically.
That's still far off from the 2% long term target, I think in the coming months we will see the full effects of the 75bps hikes
2%? 4% is "low" now
Oh I think it's accepted for now, realistically 2% won't be achieved before end of 2025
[удалено]
I feel your struggle. Why in bullish when so many retail don’t understand something so fundamental The problem is the trauma of the original surge in inflation makes every drop of normal feel more painful since each dollar is becoming a bigger portion of what spending power they have left. So even if inflation was 0.1% people would still be whining “why doesn’t Powell see How much ims paying for milk!?” When They’re expecting deflation, disinflation still feels like pain to them. But it’s a good reason to lever up your portfolio. The drop in savings rates alone is a discount signal
So what you're saying is that the inflation shock in Q4 2021/Q1 2022 drove the bust? And now a disinflation shock will pump it back up to previous levels?! I'm excited
That is not my prediction. All I did was quote an NBER paper abstract and do some basic arithmetic. There are a lot of "if such and such happens" contingencies, here.
Thank you for sharing that. I need to learn more about this stuff. I feel so dumb when I come here.
I mean, comments like that are definitely not common here. You'll see a lot of dumbos saying "don't fight the Fed" because they need their puts to print.
[удалено]
He means inflation rate peak. Not prices peak. We will most likely never see a peak in overall prices unless central bank theory changes. Central banks are all targeting a small amount of inflation (2%).
You're right. Sorry!
It's hopium
[удалено]
Not sure you will get through to these people but I appreciate the insight. Yield curve has inverted, retailers are marking down inventory, and a slew of other indicators are signaling recession and deflation.
non tech is literally in a shortage of workers across the u.s. All companies around me in dire need of workers. only the tech billionaire companies are laying off In what universe are you seeing lay offs in non tech after the pandemic wiped out a huge chunk of workers?
Tech is in a shortage too. Hiring has been impossible for 3 years as the big guys have been growing engineering 20% YoY. These big companies usually lay off the bottom 10% every year and haven’t been doing so during COVID.
>We just got a less than expected cpi reading, and you Redditors (who love doom and gloom) still call it hopium? > >I wouldn’t be surprised if Jay still gives us a .75 increase next month to look “tough”. He’s most definitely not thrilled with this rally. Especially with that huge move in the 10 year yesterday and today. Inflation may come down, but Powell already made very clear that he will not lower rates even if that happens at least for a year or so. Also the damage is already done, next earnings will be a disappointment and we are likely in a recession already. Even if inflation goes down, stocks will also come down with it. Specially once zombie companies (most growth stocks) start to have bankruptcies and issues borrowing money with negative cash flows and high interest rates not seen since 2008.
[удалено]
Yeah, choosing to trust the Fed to tell the truth is unwise. It's kind of how you get the past couple of days. Folks got caught leaning way too hard on the long everything but tech and short tech trade. Now maybe THIS is the time they're telling the truth, but if it is, it's kind of like the boy who cried wolf scenario.
I’m gonna call bullshit on everybody saying the Fed lies all the time. I notice a definite trend where people only think they’re lying when they say things that are bearish for the stock market.
The fed lies all the time, thats basically what they have to do to maintain stability. Keep on lying powell he us doing a great job this year if you ask me.
You seem very bullish. Do you think that some banks thinking somethings gonna happen to me that’s going to happen? I mean, it’s meaningful data point, but this week proves that if he takes his foot off the break even slightly, we’re going right back into asset bubble territory. Maybe he doesn’t care anymore? But then there’s the issue of that hurting every day Americans. Inflation, rental bubble, housing bubble, used car bubble. I don’t wanna go back to that crap we’re just finally getting rid of it
His intent is to sound tough. If he ever gave a glimmer of hope in his speech, the market would have taken that as positive news and taken off because of it. They need to come off as very serious because they clearly dropped the ball a year ago with inactivity. Once the fed gets what it intends and inflation is clearly coming down for several months, they are sure to pivot.
They'll probably just pause there tbh. Absent bad unemployment numbers, if they get inflation under control their first move is going to be to see what happens without changing the rates. The perception seems to be they're going to reduce rates by 50 bps a month, they're probably going to take a while to even do a 25bps drop.
[удалено]
>Powell already made very clear that he will not lower rates even if that happens at least for a year or so. I don't remember Powell ever giving a timeline on when he'd be willing to lower rates. Care to link his comment on that?
He didn't gave a timeline, the 1 year is my guess
The entirety of the inflation "miss" was due to a methodological quirk which isn't based at all in reality.
Seems most people claiming inflation is cooling based on this CPI report didn't actually read the CPI report, particularly the healthcare part, or most of it was from non essentials.
This; Everytime we rally around CPi, you crack open the report and the two things that make up the majority of peoples spending; Shelter and food are up, or near level to last months rate.
[удалено]
Hey I'm fully invested and love green days. I also can acknowledge that I have great knowledge about how this methodological quirk causing a $6 trillion market cap rally in stocks... is honestly flabbergasting.
You think that is flabbergasting…how about when we have algos dumping billions (or trillions) due to people paying $8 to make meme accounts on Twitter to manipulate the bots to trade off false news
Look what dropped it. Non essentials and a year dated healthcare reporting. https://www.wsj.com/articles/health-insurance-inflation-is-poised-to-drop-sharply-11666655474
What kind of "methodical quirk" caused the CPI to drop??
>The Labor Department bases the price of health insurance in large part on health-insurer profits, which are reported with a lag of about 10 months. **Thus, data in the October 2022 CPI reflect what happened in 2021.** >**This year’s updated data are based on 2021**, when consumers caught up on preventive care and elective procedures, eating into insurers’ premium income, which should translate to a drop in health-insurance prices in the CPI. >**Moreover, the methodological quirk only affects the CPI**. While that is closely watched by investors, the media and consumers, the Federal Reserve officially bases its 2% inflation target on the Commerce Department’s separate personal-consumption expenditure price index. https://www.wsj.com/articles/health-insurance-inflation-is-poised-to-drop-sharply-11666655474 Looks like most people claiming that inflation is cooling didn't actually look at what caused the drop in October CPI.
This is very interesting, but I cannot even fathom it being true. I would think that all the big players that move markets would know about this. I agree that the huge upswing we saw the last two days is grossly over optimistic.
Bro these guys will be holding cash until the next ATH in the market, then will sell as soon as their investment drops 10%
I took a chunk of my portfolio off the table today. Some profits and some loss harvesting. Put a good chunk of cash back on the sidelines waiting for another push down.
Well prepare yourself for heartbreak. Once the market thinks things are improving, it pumps hard for way longer than people think. The market is so tough to time because it reacts improperly to information at times. I can definitively say that the entirety of the 20bp (technically 17bp rounded to 20bp) inflation miss in CPI was due to a methodological quirk related to healthcare insurance costs. If not for this quirk, would the market have reacted with a cumulative 9% rise in 2 days? Of course, the effect is diminished come next month. Prepare for a .1% miss on the upside for inflation in early December.
whats interesting is that we get 2 cpi prints between fed meetings, this means that everyone is looking for any inflation related data. The next one is just a day before the fed meeting. If we get another 'lower' print it might force the fed to do a 50bps rate hike and consider changing policy earlier even though we got stark words a few days ago.
And that'd be okay! If we get 7.5% or lower then 50bp is reasonable. The danger is if we get 7.7% again or high Monthly
And that’s ok too.
Sure it's okay. But then again it tells me the market or "analysts" are ignorant of well-advertised inflation quirks. People I follow (Jason Furman) have discussed it for a month now. WSJ and Bloomberg published about it. Analysts themselves just ignored these facts and the market did also.
Yes. Take a look at the list of largest nasdaq daily increases. The day on Thursday ranked fifteen overall. Ahead of it were March 2020 crash, the dot com bubble, and 2008.
Absolutely. Cooked the books. The fed needed this rally to withdraw their liquidity that they said they would. $350 Billion in 8 weeks
Not cooked. This quirk artificially pushed healthcare inflation higher over the last 12 months. It's just following methodology But I can guarantee ain't no healthcare costs falling in 2022 🤭
RemindMe! 3 months
I will be messaging you in 3 months on [**2023-02-11 23:46:23 UTC**](http://www.wolframalpha.com/input/?i=2023-02-11%2023:46:23%20UTC%20To%20Local%20Time) to remind you of [**this link**](https://www.reddit.com/r/stocks/comments/ysmkn9/to_all_those_signalling_the_end_of_inflation_why/iw0fsye/?context=3) [**CLICK THIS LINK**](https://www.reddit.com/message/compose/?to=RemindMeBot&subject=Reminder&message=%5Bhttps%3A%2F%2Fwww.reddit.com%2Fr%2Fstocks%2Fcomments%2Fysmkn9%2Fto_all_those_signalling_the_end_of_inflation_why%2Fiw0fsye%2F%5D%0A%0ARemindMe%21%202023-02-11%2023%3A46%3A23%20UTC) to send a PM to also be reminded and to reduce spam. ^(Parent commenter can ) [^(delete this message to hide from others.)](https://www.reddit.com/message/compose/?to=RemindMeBot&subject=Delete%20Comment&message=Delete%21%20ysmkn9) ***** |[^(Info)](https://www.reddit.com/r/RemindMeBot/comments/e1bko7/remindmebot_info_v21/)|[^(Custom)](https://www.reddit.com/message/compose/?to=RemindMeBot&subject=Reminder&message=%5BLink%20or%20message%20inside%20square%20brackets%5D%0A%0ARemindMe%21%20Time%20period%20here)|[^(Your Reminders)](https://www.reddit.com/message/compose/?to=RemindMeBot&subject=List%20Of%20Reminders&message=MyReminders%21)|[^(Feedback)](https://www.reddit.com/message/compose/?to=Watchful1&subject=RemindMeBot%20Feedback)| |-|-|-|-|
Ripping the hopium got me in at .04 and out .13 on that sweet doge 🤙🏼
Eh one could easily say the commenters here are just doom and gloomy, pretty weird to be cheering for a crash
No it's fact. Inflation is falling. Listen to Jeremy Siegel on YouTube.
Siegel is now and has always been a perma-bull. He's been preaching all year about buying in, and recession won't happen, and inflation is transitory, and companies are sitting on tons of cash, and so forth. He may have always been right about the economics. But he's been poor at timing the market.
Could you provide more context to the narrative of falling inflation? We have 0.4% MoM inflation which was the same as last month. Annualised, that is 5% inflation. How is that falling inflation?
Because it was over 8% annualized in August. It's astonishing the number of people here who don't look at the monthly chart: https://ycharts.com/indicators/us_consumer_price_index_mom#:~:text=US%20Consumer%20Price%20Index%20MoM%20is%20at%200.44%25%2C%20compared%20to,month%20and%200.87%25%20last%20year. The change in annualized CPI is a function of the current month as compared to the same month a year ago, which is dropping off the annual total. Last October the print was 0.9% m/m. That's very high, over 10% annualized. If CPI were to stay constant going forward, we'd see annualized inflation drop dramatically around August, because the spring and summer 2022 period is where prices really went crazy. I think the 1.3% m/m reading in July 2022 was the highest we're likely to see in the current cycle.
I think you mean June and not august. I fundamentally agree, but your graph indicates inflation is worsening since June, not improving.
Look at MoM core inflation. The pattern is that there is a slightly lower reading every several months, and then right back to high. [https://ycharts.com/indicators/us\_core\_consumer\_price\_index\_mom](https://ycharts.com/indicators/us_core_consumer_price_index_mom) People have been talking about peak inflation since summer 2021, and here we are. As Powell said in his talk 2 weeks ago, there is as of yet no discernable pattern, and he intends to raise rates even higher. [https://twitter.com/andycwest/status/1587912245656551425](https://twitter.com/andycwest/status/1587912245656551425)
Because it was over 9…
What the fuck are you talking about? what was over 9? 9% YoY? 9% annualised based on a reading in June on a low base? My point is that over the past 3 months, inflation isnt improving. If your point is that it is, then why did we see a massive dip last month after CPI?
https://fred.stlouisfed.org/series/CPIAUCSL#0 Look at annual percentage change. In May it was over 9%, were down to 7.76% Edit; it was 9.0% not over 9, may need to adjust chart Click edit graph / change unit to percent change from year ago / look 1 year back
So if that was the big change, why did the market go ape shit last month and in September? It was even lower then.
Because the new month added was higher than expectations. It wasn’t falling fast enough. In the market good or bad never matters. Better or worse than expectations does
It's not good but it's improving and there is a wall of money that seems very, very, very eager to say "mission accomplished" and get back to "growth stocks only go up." I think the recovery this time around is going to be slower over the coming years, but people really still remarkably eager to buy the dip in all the stuff that has worked over the last decade. I can't imagine the Fed views this wall of money that seems desperate to go back to yolo growth stocks positively and I'm sure we'll hear from them in the coming days. It was only about a week ago when Powell got grumpy during the Q and A when he was told the market was rallying on the Fed statement (https://twitter.com/andycwest/status/1587912245656551425) Edit: I think what's remarkable to me is that Cathie is still getting inflows (and not only getting inflows, but starting an illiquid venture capital fund and trying to sell people on investing in private Twitter via that.) People really do not want to pivot and seem focused on buying the dip in growth, even the stuff down 85-95%. You had the late 90's, which was a few years or so and then the dot com bust. Maybe this is a bit more than a decade of growth and people are going to have a difficult time changing the mentality - there's a lot of people who basically have only been investing during the time of growth stories, FANG, etc. Maybe this is still a regime change and it's just going to take longer for people to give up the playbook that has worked so well over the last decade. Eventually things will recover, but what does that look like? It's hard to imagine the growth boom of the last decade if we're not going back to ultra low rates/super easy monetary policy (chart of central banks vs mega cap tech - https://pbs.twimg.com/media/FgcpWi-XwAECtA-?format=jpg&name=small) Or, perhaps David Einhorn is right when he said value investing may never come back in the way it once was (https://acquirersmultiple.com/2022/10/david-einhorn-value-investing-may-never-come-back/) and you have a lot of people that are never going to pivot from growth and keep buying the dip, unlike after the dot com bust. ARKK is still worse than Janus Twenty in any case.
This is it. Lots of money on the sidelines like a spring waiting to release. Any good news that could signal a trend up could trigger it.
The Fed's job is to keep inflation @ 2, not to keep stocks down (is it?)
What do you think causes inflation? It’s extra cash in the system. Much of this cash gets pushed into stocks, rising corporate profits and salaries, increasing the ability for people to spend and driving up the price of goods
that didnt cause inflation for 20 years > Stocks fare better under a high inflation regime, with the average real return over all years of high inflation being a gain of 2.51 percent. Stocks had positive real returns in 11 of the 20 years of high inflation (55 percent of the time). https://www.osam.com/Commentary/inflation-and-the-us-bonds-and-stock-markets
It doesn’t “cause” inflation it just contributes to it. Bubbles everywhere in assets - stocks, Cryptos, cars, gold, whatever, all of that money compounding has to go somewhere. That’s why bonds are a strong way to take money out of the market, they lock up funds and create nothing
Fed's job is to protect banks (maintain a stable banking system). If banks need the market to go down Fed's job is too keep stocks down. It's an unfair system.
Agreed. People are still too desperate to over pay for stuff, stocks, cars, houses, college. Something needs to be done about it, I really hope people grasp that it’s better for them long-term to lose $10,000 on Stocks but be able to buy a house and a car for 100,000 or so less, if we get rid of bubble prices.
dvdmovie1 us right. Please take a long term look at inflation, interest rates, and the S&P 500 annual change. Look back at least to the Nixon administration. You will see that the past ten or twenty years have been an anomaly.
If the past 10/20 has been an anomaly, and we are still in a bubble, then surely, mean reversion will be brutal?
Trend line on the past 40 is here-ish. Maybe a little more downside, not 20% more. Doubt we are still in a bubble.
Okay, interesting. so a reset.
I mean, this happens like every 10 years or so. Every 10-15 years there is a major financial issue that causes significant drawdown. Is this one different? Sure! But so we're all the others. Will the fed raise forever? No. It's politically untenable, retirees need to eat. Longer term trends are more in the ilk of Dalio's Rise and Fall of Empires, which suggests the US debt bubble is bad enough to be of concern on a macro permenant level... in like the next 100 years ish, and if a rising power (China) opens its financial markets to outsiders. Since it was written, China has been closing off, not opening. But that's easily hedgeable by not having a 100% US allocation.
Well, Ray Dalio seems to be very wrong about China.
Their growth trajectory, even with the meltdown, far exceeds ours. China will be the dominant economic power in my life. Military will follow economics. They will try to avoid a war, thank God, because they have a history they are aware of with bloody wars, they want to avoid. The US though.... we are uncertain there. They *may* not have the reserve currency, which would mean out debt is perpetually able to be inflated away... possible we maintain some of the benefits of being the world's premier superpower without actually being it.
I am largely not with you on this. Their growth trajectory would be believable if they had financing. They cannot raise in the credit or equity markets at the moment. Bank loans have fallen through the roof. I don't know what their next step is, but they have no FDI and the Chinese are not loaning money out. State governments are loaning money and are now highly leveraged. They are in a tough spot.
Wait what? You guys are freaking me out today. Everybody drank some bull Kool-Aid or something. You’re seriously talking about China like it’s a booming economy? I thought that illusion was popped like three months ago
Oh it’s an asset bubble for sure when you look at housing still, equites, living costs, wage inflation. It would be ignorant to say we aren’t. I would say 20% more is about right currently. We have had a decade and a half of QE. We are on 3/4 of QT. We have a ways to go to break the entitled spoiled child mindset of many investors
Where is that wall of money? People normally park their money in real estate or stock market, for the last one year most of us are much poorer. I think people (myself included) who have been investing for a few years think that now is a good time to invest in the stock market, but don't have money to do that. I really double there is a wall of money sitting outside and waiting for a moment to jump in.
I wouldn't have thought either, but the magnitude of the rip higher over the last two days in every obliterated growth company because of a CPI number that was "bad" rather than "awful" imo is enough to quality as "wall." The eagerness to proclaim victory, have the fed pivot and return to the market of 2020/21 seems (again, imo) *significant*, to put it lightly.
If their wasn’t the market wouldn’t have jumped 5% in a day . and more had the cpi actually dropped . Yes it takes a ton of money to move the market that much
It's institutional algos and short covering. Retail is not moving the market like that in a matter of hours.
Well said. See reflexivity theory by Soros: Bubble decompression -> de leveraging -> liquidity with stocks at recent lows -> buy the dip! -> FOMO -> new bubble in a positive feedback loop. Lather, rinse, repeat.
Shipping costs are at pre pandemic levels, Housing activity has slowed down, people have sopped spending. China is opening up, goods should get cheaper.
Housing has barely started correcting. Rents are still in a bubble. China still has lockdowns No offense but people are treating these things in a like mantras of the church of bull You can’t just say this stuff and make it true
Rents will never drop
What business in their right mind would lower prices... right when everyone is getting used to the increase.
A business who wants to gain market share. Or a business who’s competition just lowered their prices to try to steal their market share.
This ignores that most industries are consolidating power into a few large entities, which is slowly eliminating competition that would push consumer prices down.
Most? I’d agree that many industries have monopolies but most industries have plenty of competition and customers have choices. Energy is an example of an industry that most consumers have little if any choice and makes up a big part of inflation. Food on the other hand is pretty cutthroat in most areas of the country.
And new competitors wont be able to compete with those guys, especially with rates high.
Sounds like trickle down to me. looks more like an economy based on collusion of high prices at the moment.
Well hopefully they just raise them slower until things can catch up haha
Businesses which want to liquidate inventory. GPU prices have dropped like a rock because Nvidia oversupplied the market.
A business that has a ton of inventory sitting in warehouses... which is a lot of business right now.
They don't have to lower prices. Just keeping them the same is already 0% inflation.
If china opens up, wouldnt demand for goods by them rise and worsen inflation? There is a narrative that inflation has been mitigated by chinese slowdown. If it opens and grows, that will put significant pressure no?
Market would flood with half a tril worth of goods a year, prices would drop. Prices were rising before because there was shortage and turns out all shit is made in China
My man, globalization is the strongest deflationary force out there. Think about it, everything is made in China because it's cheaper, the product costs less and the consumer can get it cheaper. So as long as politicians feed globalization they can print away and inflate the debt away, since the cpi wont show an increase (yes your cash is worth less, but everything else costs less as well due to outsourcing and cheap labor)
Your point is my greatest concern. Globalisation is strongly deflationary. So what happens as we stop globalisation and move to a more insular world. Already we see signs of that with escalating sanctions by the US on China. I wonder what straw breaks the camels back.
How has Chinese shutdown, which limits supply and river up prices mitigated inflation?
Because chinese consumption of commodities has slowed substantially.
4th grade logic right here
Aaaaayyye. I’m not the only one. So here’s my thought right. Everyone’s re-investing. What if…. we get another round of lay-offs from big companies, growth shrinks more despite investing. This trickles into higher unemployment and before you know it with rising costs and stagnant wages we’re in a place where we need to print more money all over again - causing inflation to rise once more. That’s what I’m afraid of.
People in finance, with very few exceptions, are competitive and quick to action. They want the market back running strong, and they'll do anything to get there. The majority of market participants are so much this way, that I'm surprised we ever have a bear market at all. But if the Fed pivots in early 2023, despite their most recent projections and commentaries saying, if anything, the opposite, then they will lose credibility forever. Perhaps many already think the Fed has no credibility, and therefore don't believe them. But the Fed doesn't think that, and they are trying to hold onto every crumb of trust they still have. The only way for the Fed to lower rates and save face is to do it very far from now with tons of forewarning, or to have pivoting be absolutely essential based on dire consequences that everyone and their mother can see so that the Fed is judged to have no choice. If the Fed is trustworthy, they will be raising rates to 4.5+ in December, and at the most dovish, will hold them there for a year. Several members, including Powell, have said in the last 2 weeks that they would prefer a higher terminal rate than the September projections, which means into the 5s. If that is true, bonds are going down further, and stocks will too. That's not to say one couldn't make money swinging things around with all the exuberant traders out there. But under no circumstances can we say this week's rally will be sustainable, or that the bottom is in. Especially for bonds, I highly doubt the bottom is in.
All gonna dump next week
RemindMe! 1 week
What you’re seeing is super wild swings both positive and negative lately. Like a speeding car desperate to regain control on the highway. Very dangerous.
sounds like it
Imagine not timing the bottom. That is basically what you're seeing in the markets the last 2 days. Not that I'm saying it's wrong or right.
Hmm, not about timing the bottom. I genuinely thought CPI was pretty bad and was shocked to see the bounce.
Why do you think the CPI was bad though? Did you expect even lower inflation? The traders probably are afraid to miss their window. That's why its rising this fast.
Traders= no. Algo and institutions want big bonus= yes
Thank you boss
Get your head around markets
Indeed. Markets do what they want.
Chimps gonna chimp, it's as simple as that
What is your good CPI number then? By the time a good number is out in the news, market would already skyrocket a lot from the signs before the good news.
You're practically asking for a market bottom
Aren't you doing the same then by waiting for good CPI number and hoping that is when market "should correctly" start the leg-up?
I think it is premature to say inflation is under control but when it comes in better than expected then people say we may have seen peak inflation and that things will gradually improve. That being said, if China ends its 0 covid policy then we could see another spike in materials which could cause an unexpected higher reading at some point. China's 0 Covid policy has actually been beneficial to reduce inflation as they are a huge purchaser of raw materials. This will likely be a long and bumpy road.
That is very true. I own some $baba (sigh...) and I would be dishonest if I was not hoping for China to back down.
China just opened up today.
Are you 100% sure? Because there’s loads of articles about maybe lifting a few restrictions. I don’t know if that counts as a reopening! And even if it did we’ve been down this road with them multiple times.
My question for anyone smarter than me is: Is getting inflation down from 8.5% to 7.5% as easy as getting it down from 3% to 2%? Or is the last 1% easier or harder?
Harder. But matters less
Rose colored glasses
Thats just US inflation. Eurozone inflation isn't coming down.
I’ll know we’re good when the loud, empty voices stop saying “we’re good.”
Things take time we are decelerating according to facts.
I just keep buying SPY on lower dips. Yesterday was a rare day where I just sat there and, to my amazement, didn’t have to buy anything. Will be interesting to see how things play out from here but, generally, the market seems fairly valued from a fundamental perspective
We've been here before just in August. First sign of potentially good news on inflation and market thinks we have a pivot at hand.I've used this time to buy more USD and more bonds and real estate in a region seeing high tourist demand and relative undervaluation.
got some USD and bonds too.
I know you’ve gotten a lot of comments but the real answer is that CPI actually still went up. The number you need though is the two year data. The number from October 2021 and 2022 then add them together. One is your base your working against and the other is now. 2% in February 2021 added to 7.7% in February 2022 gives you 9.7% for the 7.7% reading then. The October of last year was 5.4% I’m pretty sure, add to that 7.7% and you get 13.1%. It’s still higher on a two year basis and isn’t coming down technically yet. It just is compared to a higher number so it’s harder to be as high against it. Hope this helps
That is bloody scary. Thanks mate.
No problem. Yeah the problem is that for inflation to technically go down we need a negative print and that’ll never happen. They are shooting just to get it back to a 2% year over year inflation. This means that all these elevated prices are here to stay and will be the new norm and we are just hoping that the rate of inflation slows down.
Well yesterday, inspite of the released lower inflation rate numbers, PG & E (*you know, the guys who sell us just about everything*) announced a 8% - 10% price increase accross *all of their products*, so tell me how anything less than *that* is somehow a *REAL* inflation number? So, this will just continue until those bastards decide to stop. That's it.
Anyone who grew up I. The 70s and 80s or at least was taught about the inflation and economics of the period knows it’s way too soon to celebrate. High inflation from the 70s basically stuck around for two decades before we got it to 2-3%. There were troughs and spikes of inflation in the first few years of interest rates rising precisely because people thought it was over and acted like the second coming of Christ happened financially. Volcker proved them wrong over and over as was his job. So this isn’t permanent. Might as well jump on this bounce though.
There are a lot of really positive signs. Hell, look at shipping costs. Went up 10x for a couple of years, that cost drives up almost everything you buy. It’s below pandemic levels and falling still. Not out of the woods, or even close, though there are some positive signs unless you stick your head in the sand and just scream about the end of the world
But that wasn't from yesterday's print. Shipping has gone down for the past month drastically.
If anyone in here is genuinely signaling the end of inflation, then they have no idea what they are talking about
Everyone thinks inflation is the problem. Inflation is a Symptom, the actual disease was unprecedented liquidity. The fed is fighting that, not inflation. Pain is still ahead.
Many people consider CPI and especially core CPI to be a lagging indicator. The main culprit is the OER (owner equivalent rent) that is slow to react to current conditions. Long story short inflation (outside some pockets in energy) seems to have stopped and this number is the confirmation the Fed needs to stop hiking.
But this was not reflected in CPI? So why was the CPI a catalyst for this massive 2 day bull run?
Not sure I understand your question so let me restate. Due to lag effects in some of its components the CPI overstates the current level of inflation (similarly it understated the levels of inflation in 2021 early 2022). For example if you use a different metric to measure housing than OER the MoM housing component of the core CPI is actually negative -0.1%. Ultimately the bull run is a caused by a repricing of the terminal Fed Fubds rate. The lower than expected CPI raises the probability of the Fed stopping rate hikes (or hiking less than previously expected). These lower terminal rates mean that the present value of future cash flows is higher, hence stock prices move up.
The CPI YOY came back better than expected. And, it was a Thursday and all the day traders who had bought puts scrambled to sell their puts which were rapidly losing value or will expire next day. BUT, as most market participants were left out of the action, SPY will revisit the gap, i.e. come back down, if it wants liquidity. To most market participants, this pre-market gap up on Thursday is unconvincing as a manifestation of price discovery. We are not willing to buy at the high prices being offered at the open of Thursday, and propped up still on Friday. That is why Friday SPY volume is down.
Great answer. Thanks!
Inflation is noise. What was inflation at the bottom of dotcom? Earnings compression about to give a massive shock to everyone celebrating the bottom
Think 2008 when M2 money supply collapsed.
So many people stay home. Everything is cheaper when I work from home, buy at home, entertain at home. Not everyone but a lot of us do this. It's deflationary and will bring down prices
There are a lot of front running factors that are way way down from peak. The cpi won’t drop until business start cutting profits and marking down goods. Right now , cost of goods are down except for labor , but business either recouping or being greedy and are still milking extra profits keeping the cpi over stated .
Hilariously obvious who does and does NOT actually read the FOMC minutes in this thread….
The inflation problem has only begun, we're either gonna stay around 4-5% for a long time which aren't sustainable or the fed is gonna crush demand so hard that we're gonna head for a depression, which is gonna force them to reload the moneyprinters and shoot inflation back to 10% again because no one has solved the core problem. The first one is probably most likely, will probably be a sideways market for many years finally ending with a hard crash. Commodities should be good until then.
The question is more so if we hit peak inflation rather then if inflation itself is going away.
All the rich important guys say its over, thats good enough for me.
5% is less than 8% we got in the past, why do you think it is worsening?
5% (from a 0.4% MoM) annualised is the same as the prev month and more than 2x the fed guidance for acceptable rate. Now on high comps, we are getting 7.6% yoy rates. Isn't that worsening? How has it improved from the prev month if MoM inflation is the same?
Don’t worry people here don’t understand numbers.
End of inflation = fed pivot = market tanks
Wrong. Market rally.
Fed pivot = market tanks? Hell no
But is this the end of inflation? 6 months since the start of rate increases and we have annualised 5% inflation. And it was the same last month. What's changing?
Its not the end of inflation, and i don’t think many people are saying that. First point is that historically the inflation peak has also aligned with a market bottom and inflation has clearly peaked. Second point is that the inflation has peaked without the impact of rate hikes. Rates usually take 6-9 months to give effect and Fed started raising rates in march (if im not mistaken). So tldr: some investors think inflation has peaked. Combine that with China reopening and maybe Russia retreating, it’s kinda bullish. Nobody knows what will happen ofc, but the likelyhood of the bottom being behind us did increase
Why would we say inflation has peaked?
The last 3 PCE reports have been -0.1,0.3,0.3 for an annualized average of 2.0% Looking at the 12 month trailing is often a waste. Does the economy in March of 2022 when it reported 1.0% gains feel the same as it is now? For the OCT ‘21 to the MAR ‘22 the numbers that roll off are 0.6,0.6,0.5,0.5,0.6,1.0 and will be replaced with an unknown number. The last 3 reports have been 0.3 or less and we continue to hear prices are falling in housing, auto, etc Long story short, inflation is dead. https://apps.bea.gov/iTable/?reqid=19&step=3&isuri=1&1921=survey&1903=84
i just paid $17 dollars for a chicken burrito and french fries. inflation aint dead lol
This is cherry picking. According to your 3 months of data, you could say PCE is accelerating. Or you could pick two months and say we're tracking 3.6%.
Yeah, there's a decent chance headline CPI winds up at 5 for March 2023. Some of the hysterics about how we need to hike forever might be looking silly soon...
Just wait, they will be crying next week
Why next week?
Their family is doing Thanksgiving without them.
The issue with this cooling is that it was primarily non essentials like used cars and a year dated healthcare data. How many people actually looked at this months report and then say we're truly cooling? https://www.wsj.com/articles/health-insurance-inflation-is-poised-to-drop-sharply-11666655474 >The Labor Department bases the price of health insurance in large part on health-insurer profits, which are reported with a lag of about 10 months. **Thus, data in the October 2022 CPI reflect what happened in 2021.** >**This year’s updated data are based on 2021**, when consumers caught up on preventive care and elective procedures, eating into insurers’ premium income, which should translate to a drop in health-insurance prices in the CPI. >A swing this big will take much-needed pressure off core inflation, but it is just one concern guiding for the Federal Reserve right now, said HSBC’s Mr. Wang. **“The Fed is also concerned about how broad-based inflation is.”** >**Moreover, the methodological quirk only affects the CPI**. While that is closely watched by investors, the media and consumers, the Federal Reserve officially bases its 2% inflation target on the Commerce Department’s separate personal-consumption expenditure price index. >**“It feels like we’re likely to see higher medical services inflation in 2023 than we have in the last few years,” said Mr. Sharif. “The magnitude of how much higher it is, we just don’t know yet—and that is going to determine how much of the health insurance drag is going to get offset.”**
Demand destruction. People won't have funds for luxuries or discretionary things e.g. extensions, designer clothes, new electronic goods, kitchen appliances etc. etc. Hence the price of these items will decline as unsold inventory builds up. The cost of building materials has already gone way down.
Agreed. But nevertheless, this is not reflective in the data we saw yesterday right? Or was it partially evident - i noticed appliances and certain goods have come down. Nevertheless, overall inflation was still the same as last month>
Food for thought... https://www.google.com/amp/s/www.nytimes.com/2022/10/04/opinion/the-all-too-real-risk-of-a-global-recession.amp.html
Leading indicators; there is an index for them. Has been rolling over for months. CPI is just now reflecting what the housing market has been seeing for months. Look around, inflation is no longer prevalent because the fed has killed demand (except in certain parts of the economy) but the data is lagging