On Friday, Jerome Powell had his Jackson Hole speech and the markets rallied. He said that inflation had not gone away so the Federal Reserve may have to raise rates again in the future, but he doesn’t expect that to happen next month and may not even happen at all. In other words he said very little. The financial media talked about that speech all week and then it came and went, because they had nothing else to talk about as nothing else of any importance at all was happening in the markets.
Let’s take a look at where things stand in the economy, to get an idea of what is going on.
This is the “GDP Now” forecast of the current quarter of economic growth by the Atlanta Federal Reserve.
The Atlanta Fed is projecting strong GDP growth for the current quarter. It sees zero sign in the overall data that there is a recession going on right now. This growth level is too strong to cause “deflation,” which is nonsense to even think is happening. All that has happened is the the rate of inflation has come down to its 9%+ annualized CPI rate to now around 4%.
The Cleveland Federal Reserve branch puts out “inflation now” numbers projecting what this months CPI report will be when it comes out next month. As of 8/25, they are projecting the next print of annualized CPI will come in at 3.83% and core CPI will be above 4%. Both of these are inflation numbers well above the Federal Reserve 2% target.
It’s going to take a long time before we see that 2% target hit.
The stock market is now floating around, because it already rallied so much earlier this year (that’s when people should have bought) that it is now highly priced on a valuation basis. But it isn’t getting sold, because there isn’t a recession happening yet and the Federal Reserve isn’t going to do much in the next few months.
And inflation isn’t really going way.
Annualized inflation was 3.2% in July so it’s excepted to tick up this month.
The Fed is scared to raise rates much more to get inflation down as it doesn’t want to cause the economy to go into a sharp recession, at which point it would come under pressure to lower rates, which would cause inflation to explode again. So, it is basically trapped into doing nothing.
For now, that is “no news is good news” for stock market bulls and sets the stage for the market to muddle around for the rest of the year.
The risk, of course, is that inflation ticks up more than just one month and the Federal Reserve does have to raise one or two more times by year end, but there is now a 54% chance of another hike happening by then – and it isn’t coming in September if it does.
So, that means stock market bulls are ready to buy NVDA and to trade options to gamble it up for the next few weeks.
NVDA has now displaced TSLA as the most traded stock every single day among Robinhood traders and Fidelity Account holders.
I listened to a call for MarketWise – a publicly traded company that sells financial trading services. They said that right now there is ZERO interest in commodities among their three million plus free email subscribers, however what they are finding is if they attach “AI” to their marketing they get buys. All people want to hear about is “AI” and NVDA is now their obsession. They have zero interest in anything else and talking about anything else can’t get you views on Youtube or any interest.
That’s why no one cared when I talked about shipping stocks in July as a sector coming out of a stage one base. Now the stocks in that sector are going up. Look at ESEA, which I bought and talked about in that July update.
I do not advocate chasing stocks after they rise so I think it is too late to buy ESEA.
I talked about XOM last week and I own it too. It hasn’t broken out yet, trading in a range with resistance at $111.00 and support at $105.00.
In the end, I’m not looking for the stock market to actually do much over the next few months, but basically establish a range bounce trade. The time to buy was in the first few weeks of the year. That is when the rally began and now it has matured and stocks are at a heigh level. The only way to get attention is to HYPE HYPE HYPE HYPE. You can’t tell people that stocks are cheap or at a low level, because they just aren’t, so you must talk about wild meme’s like AI to get them interested in what you have to say. So, I just don’t have much to say right now and may not for months. Nothing important is really happening in the markets right now.
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-Mike
