The big headline this past week on the economic front was the uptick in the September CPI report. The beat was subtle, only 0.1% above estimates, so I think it’s still too early to come to concrete conclusions. That being said, I do think inflation will become a problem again… just not yet. In my view, this has to do with the oil market, which remains range-bound. Unless crude oil starts surging higher, I don’t expect there to be a meaningful uptick in inflationary pressures. The big question, of course, is how stocks would handle such a macroeconomic development. Let’s discuss this further…  The Real Correlation Between Stocks and Inflation I want to set the record straight on the relationship between stocks and inflation. Have a look at this long-term S&P chart below, which also includes the correlation with the CPI index on the lower part of the chart. The

If you had the power to know the future, would you seize it? I’m not saying that I, or anyone else that I know does, but I would venture to say that markets are the closest thing to a crystal ball that we have, assuming you know how to read them properly. If you can believe it, we’re already almost through the first-half of this decade, and in many ways, the world is unrecognizable from 5-years ago. I would even go as far as to say the world changed more in the last 5-years than it did in the previous 10-years. Such is the nature of change, and by studying markets, we’re able to witness it occur in real-time. Over the past couple of months, I started seriously tracking what I’m calling the “New Era Trinity Trade.” You’ve definitely heard about these themes independently, and perhaps in a pair, but

Over the past few weeks, I’ve been adamant that the Fed is playing a dangerous game on the inflation front. Starting another round of money printing before long-term inflation targets have been achieved isn’t just reckless, but borderline negligent. So, I’m not surprised to see that an inflationary sector led the market again last week. It’s not a full blown “head for cover” alert, but rather a signal that storm clouds are gathering on the horizon.  Have a look… The Fed Poured Gas on the Inflationary Coals After being overtaken by basic materials (XLB) the previous week, energy (XLE) was right back in the one-week leadership spot in the sector performance rankings. This means that the last three weeks has seen inflation-related sectors emerge in the one-week leadership roles. This reinforces the notion that the Fed is pouring gas on the coals of inflation. If enough embers remain, it could

The world’s reserve currency has staged a major rebound in recent weeks after declining since mid-April. During this time, stocks continued their bull market, while bonds rallied to multi-month highs. As the largest and most liquid market in the world, the currency market significantly influences all others – stocks, bonds, cryptocurrencies, and commodities. This raises the question: Does a shift in the Dollar’s behavior threaten the stock bull market? Possibly, but not necessarily.  Let’s explore further… Capital is Never Created or Destroyed Imagine global markets as a water tank, with money as the water. It flows to areas of least resistance, driven by economic incentives. Every market’s behavior must be understood through the lens of currency. A stock market rally coupled with a falling local currency signals an inflationary rally. Conversely, a stock market rallying alongside its local currency indicates net global demand for those equities. The latter scenario describes

As the market settles into the Fed’s new round of monetary stimulus, I’ve been warning that a return of inflation cannot be ruled out in the near future. Last week, I noted how the energy sector (XLE) perked up and claimed the one-week leadership position in the sector performance rankings. But this week, there’s another new leader in the sector performance rankings. And guess what? It’s another inflationary sector.  Check this out, because the Fed continues to play a dangerous game, and we need to be ready…  More Fodder for Higher Prices The new one-week sector leader is basic materials (XLB). This is another sector that makes up part of what I like to call the “inflation trade.” The others include energy, industrials, and sometimes, even consumer staples. This makes it two weeks in a row now that we’ve had an inflation-related sector gather momentum. Note the timing of this

One of the biggest headlines in markets this week was what transpired with the Chinese equity market. We’ve seen stimulus after stimulus over the past couple of years on behalf of both the People’s Bank of China and the Chinese government, so what makes this round so special? The spoiler is that there isn’t anything special about this new round of stimulus. On the contrary, I think it has a lot more to do with the Fed’s policy decisions as of late. But as I’m about to show you, the trend of China’s underperformance against U.S. stocks has been going on for years. The trillion-dollar question now is whether we’ve reached a key inflection point… Capital Flows Never Lie In markets, it’s critical to separate narrative from reality, lest you get burned. For years, we’ve been lectured about how China was going to become the global economic superpower, and to

The Fed finally went ahead and cut rates by 50 basis points last week, officially signaling that we’ve entered a new round of monetary easing. We knew this was coming, and that the market discounts future events. Remember that interest rates, at their core, are simply the cost of money. I’ve had some concerns with respect to the sector leadership rankings over the past few weeks, and you may be surprised to see what sector popped after this rate cut…  Powell’s Fed May Add Fuel to Inflation The top-performing sector last week was energy, as tracked by the SPDR Select Sector Energy ETF (XLE). This is a noteworthy development, because it’s been months since this sector was displayed in the Tale of the Tape’s ranking table. With the Fed easing and printing money again, we must be alert for a reignition of inflationary pressures. I’ve been warning about this danger

If you ever follow any of my live sessions here at TheoTrade, you’ve probably heard me poke some innocent fun at the crypto crowd. Let me assure you that it’s with the sincerest intentions – I don’t enjoy seeing people getting caught on the downside in market manias. But at the end of the day, it’s all part of what makes a market. That said, I think it’s time that we start looking at opportunities in the crypto space again. Let’s take a look at what some of the recent macroeconomic developments mean for this sector…  The Return of the Crypto Carry Trade In recent weeks, the blowup of the carry trade in the Japanese yen has been on everyone’s mind. In fact, it’s something that I pounded the table about in these newsletters before it all happened. Now I’m here to tell you about another carry trade that could

Markets closed out last week near the highs, courtesy of the tech sector. This is the exact type of leadership we need to see if this bull market is going to continue.  To be clear, one-week leadership isn’t as significant as 30-day or even year-to-date leadership. So even with tech’s solid rebound and the plethora of setups I keep seeing under the surface, let’s check in on the sector performance scores to see if there’s anything else worth noting…  Tech Opened the Window – Can Bulls Plow Through It? In recent weeks, I talked about how it was absolutely necessary for tech to make a comeback in order to save this market from a further decline. Well, that’s exactly what happened last week, as the XLK tech-sector ETF stormed back into fourth place amongst the 11 S&P sectors. But if we look across a longer time horizon, we note that

After a year of being with the TheoTrade team, I finally got the opportunity to meet Don and the rest of the team. It’s always great to put a name to a face, especially when you’re talking to people on a daily basis. Not to mention, I’ve had the chance to meet many TheoTrade members, and believe me when I say the ideas are flowing. Even though we’ve gathered here in Scottsdale, markets have stayed on the move. I’ll be straight up with you and say that there’s been significant improvements in the market’s tape over the past week.  Here’s what I mean…  Why the Macro Picture Could Help Tech In recent weeks, I was warning about the deterioration in the tech sector and how it had slipped all the way down to 7th place in the sector performance rankings. But that was last week – tech surged higher in