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I had the chance to sit down with Alfonso "Alf" Peccatiello, founder & CEO of The Macro Compass. I was looking for his read on the state of the markets, given the surprise decrease in rate of change of the CPI and PPI.
Of course, we know those numbers and the "cooling inflation" they report are pretty fuzzy; the decreases were led by declines in apparel and used car prices, as opposed to shelter and energy.
Nevertheless, the numbers sent the markets soaring in some of the strongest buying in two years. Indeed, momentum remains green, and we're hitting key support levels in the S&P 500, as tracked by the SPDR S&P 500 ETF Trust (NYSEARCA: SPY).
Alf and I agree: one good CPI print doesn't mean much. More than that, Jerome Powell can't afford to be wrong... but he's likely to overtighten policy.
If you've been in the markets for a while, this will seem reminiscent of 2001, when Alan Greenspan's Federal Reserve cut interest rates from 6.5% to 2% over the course of one year.
At the time, the stock market collapsed. This is what Powell needs to avoid... but possibly won't.
The market rally is now looking stretched based on technicals, and recent earnings from the likes of Micron Technology Inc. (NASDAQ: MU) and Target Corp. (NYSE: TGT).
Alf says we should start to target going short when this happens. Watch for how to play the bear market rally…
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About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, and consultant with degrees from Northwestern, Johns Hopkins, Purdue, and Indiana University. He is a seasoned financial and political risk analyst, with a focus on stocks, hedge funds, private equity, blockchain, and housing policy. He has conducted risk assessment projects for clients in 27 countries, and consulted on policy and financial operations for some of the nation's largest financial institutions, including a $1.5 trillion credit fund, a $43 billion credit and auto loan giant, as well as two of the largest Wall Street banks by assets under management.
Garrett joined Money Map Press as an economist and researcher in 2011, specializing in alternative strategies with an emphasis on fundamental and technical analysis.