2021-11-14-SPX Trendline Analysis - Daily
The ADX continues to highlight bullish price action and trend, as does price/volume. Elliott Wave maintains an uptrend. The Nov 5 high could be the end of Wave [iii]...that said, the low last Wednesday could have been the end of Wave [iv] as well. Once the first minor wave completes, we’ll have a better idea of potential targets.
2021-11-14-SPX Elliott Wave Analysis - Daily - Primary 1
As expected (at least if you read this blog), inflation readings continue to come in above expectations on both ends of the economic spectrum. The Producer Price Index (PPI), which measures the inflation seen by people that make something, came in at a whopping 8.6% year over year. The Consumer Price Index (CPI), which measures the price increases that you and I see when we buy something, increased 6.2% y-o-y. This figure is referred to as the "headline" CPI number or "total" inflation.
When you hear or read about the U.S. Fed's inflation target of 2%, that refers to "Core CPI". Core CPI excludes food and energy prices from the calculation, because those goods tend to have volatile prices. This omission usually provides the Fed some wiggle room, because inflation levels are almost always lower when you remove two of the biggest components. But even Core CPI rose 4.6% y-o-y, so that measure doesn't provide the Fed any cover at the moment.
The insidious part about inflation is the impact; what it leaves in its wake. Next year, prices could be just slightly above today's level, which would show something like 1% inflation y-o-y. The Fed could claim that all is well! Prices have stopped going up, and inflation was indeed transitory.
For consumers, the sting of inflation remains, because the prices that we pay are still "high"; they're just not getting any "higher". The actual impact of inflation is only transitory for you and me if prices go back down to earlier levels, which requires deflation and deflationary policy.
What does all this mean for your investments?
Near-term, the U.S. economy and inflation are likely to continue their rise. In that type of environment, stocks and commodities would continue doing well. As far as sectors are concerned, industrial, technology, and energy would benefit.
Eventually, the inflation numbers will begin to decline, if for other reason than the comparison with 2021's higher than normal increases. At that point, growth will be the wildcard. If economic growth continues, then stocks remain good plays. If growth slows, then equities aren't as attractive overall, and defensive sectors like utilities likely to outperform. In both cases, your asset allocation strategy is key (assets, sectors within asset classes, strategies, etc.).
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Charts provided courtesy of stockcharts.com.
Once a year, I review the market outlook signals as if they were a mechanical trading system, while pointing out issues and making adjustments. The goal is to give you to give you an example of how to analyze and continuously improve your own systems.
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