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Bad years leave a taste in everyone's mouth... and I'm not merely talking about wine.
In 2022, equities suffered their worst year since 2008.
Technology stocks were the hardest hit.
The Nasdaq plummeted 33.1%.
Now, after a year like that, there's an unfortunate trend that follows... investors start looking for disaster around every corner.
For decades, this has been as predictable as the seasons.
Every data point is latched onto, believing it signals the early warning of the next crash.
Every rally is side eyed with skepticism.
Unfortunately, investors who fall into this emotional and psychological trap watch their returns circle the drain.
The higher the market rebounds, the more convinced they become there's a cataclysm on the horizon. They double-down on their fears, as their portfolios fall further and further behind.
Well, this week we have a number of data points about to be unleashed.
And this morning, I've cut through all the nonsense and noise to simply provide you with the facts... what to expect, and how to react...
10 Out of 11
All I care about is facts.
I'm not concerned with feelings or inclinings.
And that's how I've helped guide investors for decades.
For more than a year and a half, I've been tracking the market reaction to the monthly Consumer Price Index (CPI) releases.
This is one of the Federal Reserve's favored inflation gauges.
And what I've learned during that time is I often feel like I'm the only sane person covering this event... As you'll soon see.
As we all know, the U.S. central bank is fighting to bring inflation all the way down from its peak of 9.1% in June 2022 to a mere 2%.
The process is a grind; chiseling away at a mountain, a fraction of a percentage point at a time.
In May, inflation rose 4% year-over-year. Not only is that a decline from that 9.1% peak in June 2022, but it was also the slowest pace inflation rose in two years.
But the Fed wants more. It wants inflation to drop another 50% from where it was in May.
Well, with the CPI release tomorrow morning before the opening bell, you can rest assured that between now and then, economists, financial experts, and talking heads will trip over themselves explaining what to expect for June.
And as always... they'll breathlessly wonder how the markets will react.
Here's the secret not one of them will share with you... And it doesn't matter what the reading is.
The Invesco QQQ ETF (QQQ) has risen on the monthly CPI report for ten of the last 11 months!
In terms of friendly trends, that's about as friendly as you can get.
Plus, if we look at how the SPDR S&P 500 ETF (SPY) has reacted to CPI, we spy (sorry, I had to) a nearly identical trend...
Every month, as we approach the CPI release, the financial news media and experts debate how the markets are going to digest that data.
They wonder if we'll see a move lower or higher.
But the fact of the matter is, the market has overwhelmingly moved in one direction on CPI for close to a year.
It makes you wonder why everyone gets so worked up over this report each month, doesn't it?
Remember, there's a single reason investors cheered CPI... And it's my favorite equation to update each month...
4 is Still > 2 But < 9
That's all that matters with CPI: progress.
Since peaking in June 2022, headline and core inflation have steadily declined...
Of course, we could needlessly argue whether the pace is fast enough. But to investors, that doesn't matter.
Over the next 24 hours, experts across the spectrum will work themselves into a froth about how CPI is going to move the markets.
But I give you this morning gift: Don't be bothered by CPI.
Don't let that constant hunt for the next disaster trick you into doing something reckless with your money.
The fact is: the trend is your friend. And for 11 months, investor reaction to CPI is the friendliest around.
Here's to high returns,
Matthew Carr