How Good is the Inflation Situation?

It’s time for a “grain of salt” to go with the bullish market.

Judging from the market’s reaction since the last inflation report, you would think that inflation is a thing of the past. 

Not true. This is a momentum versus acceleration situation.

What we mean by that is that the “acceleration” in inflation that was saw over the last year has stopped, but the momentum hasn’t. Think of it as speeding up to get on the highway and then hitting “cruise control”. Prices are now cruising at higher levels.

Of course, the last CPI report was flat on a month-to-month basis. The Core CPI number was the lowest in two years. That combination was music to the market’s ears as the media suggests that inflation is gone.

Inflation may be “gone,” but it’s certainly not forgotten. Here’s the problem.

According to Mastercard Spendingpulse, U.S. retail sales on Black Friday rose 2.5% year-over-year excluding automotive sales, not adjusted for inflation.

It’s that last part that should matter to you as an investor that may be worried about a consumer-caused recession.

“Not adjusted for inflation” is a huge statement as we roll out of a year that has continued to drive prices for the things around us to be up roughly 20% from where they sat almost four years ago.

According to Bloomberg, “It now requires $119.27 to buy the same goods and services a family could afford with $100 before the pandemic.”

Here’s where I help.

First of all, Time Magazine put the following “hacks” together to help you combat inflation at home. You’re welcome.

Second, we’ve got to point out that the “not adjusted for inflation” comment above is your key to keeping an eye on retail stocks over the next two weeks. This is the market’s weak point.

Historically, this group of stocks outpaces the rest of the market from Labor Day to Black Friday. From there, they’re a 50/50 proposition through February.

It happens because investors “buy the rumor” ahead of the holiday shopping season, then “sell the news” after Black Friday. It really is that simple.

We may be bullish on the market, but these stocks are skating on thin ice as consumers adjust for inflation this holiday season.

A few names we’re watching to move lower:

  • Bath & Body Works (BBWI)
  • Best Buy (BBY)
  • Chewy (CHWY)
  • eBay (EBAY)
  • Walgreen’s Boot Alliance (WBA)

About the Author

Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.

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