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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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Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.