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More Inflation - More Interest Rate Increases

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D. H. Taylor
(@dhtaylor)
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Joined: 2 years ago
Posts: 1098
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The inflation numbers came in today for Personal Spending, Personal Consumption, and PCE Deflator (Personal Consumption Expenditure).  There was a rise in both the headline and core.  The above chart is the YoY that I follow intently.  This is where I focus all of my attention when it comes to predicting the markets of any kind.  The PCE is also the indicator that the Fed watches (More so than the CPI indicator because this is more sensitive and focused). The released report with the increase has seen stocks move lower.  But, stocks have since mellowed out considerable.  

My thesis is still the same: We will have nagging inflation that is going to continue for a long period of time.  Full employment has to drop considerably to relieve pressure on demand.  This will allow for the supply chain to catch up.  That is what will be the ticket to getting inflation back to lower levels.

Keep in mind, the Fed is targeting 2.0% inflation increase YoY.  If we are stuck at, say, 2.75% for a period, the Fed will keep rates high.  

During this time, the contraction in employment from higher interest rates is going to contract revenues for companies.  This, via the transitive property of simple math, will mean lower profits for companies.  That translates into continued pressure on the stock market.  

I am looking for an additional 10% - 15% - 20% drop from this level:

But, I do not necessarily see that drop coming from this particular level.  We likely will see some buying on the dips from where the market is at this level.  We've dropped considerably from highs.  Now, a likely breather is in store and stocks can start to trickle back upward before any real moves lower begin again.

I'll add in more information next week and likely do a video on everything.  


   
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