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INFLATION READING:
Prices rose just 0.1% month-over-month, putting the annual inflation rate at just 2.4% (below expectations). Most of the decrease came from energy prices, which fell 1% over the month, and most of the increase came from housing, which is still up 3.9% from a year ago – the lowest increase since late 2021.
It’s theorized that the reason we’re not seeing inflation (yet) is that most businesses pre-purchased inventory, ahead of time, to reduce costs in the event tariffs remained in effect. As one analysts points out: “Tariff-driven price increases may not feed through to the CPI data for a few more months yet, so it is far too premature to assume that the price shock will not materialize.”
THE BOND MARKET:
Bond prices have fallen so much that the US stock market is now 50% larger in comparison, a level we haven’t seen since the early 1970s. Why this is concerning:
-The Banking Industry.
Because banks often place customer deposits within bonds, they’re sitting on some of the largest losses, in banking history – essentially being forced to hold, or risk losing a lot of money.
-United States Debt
Typically, US Treasuries are seen as the ‘risk free’ rate of return, but we’re now seeing both 10 and 30-year loan terms having to pay more money just to get people to buy them, signaling that investors demand to be compensated more for the risks of endless money printing, growing deficits, higher than expected inflation, and the increasing likelihood that the USA just doesn’t look as attractive as it once did.
-The Dollar Crisis.
As government debt gets bigger, investor’s concerns increase, causing them to demand higher rates, causing government to issue more debt, causing investors to demand higher rates. Essentially, there’s there’s no way out – other than printing more money and devaluing the dollar.
INTERNATIONAL TARIFFS:
Jerome Powell said that “If the large increases in tariffs that have been announced are sustained, they are likely to generate a rise in inflation, a slowdown in economic growth, and an increase in unemployment. The effects on inflation could be short-lived, reflecting a one-time shift in the price level. It is also possible that the inflationary effects could instead be more persistent,” leading them to take a “wait and see” approach that results in absolutely nothing being done.
Analysts say they may have to chose between “fighting inflation with tighter monetary policy or cutting interest rates to support growth and employment.”
STOCK MARKET: BEAR CASE
-A record-high 38% of S&P 500 companies gave negative guidance for future quarters, while only 15% issued positive guidance – which, was the widest negative-to-positive gap since the financial crisis in 2008.
-GDP has declined by 0.3% in the first quarter
-Tariff Uncertainty Over The Next 90 Days
-Stocks Trading At More Than 20x Earnings, which, is historically high.
-International Conflict Could Threaten Our Global Economy
STOCK MARKET: BULL CASE
-Inflation Is Slowing Down
-Corporate Earnings Still Strong
-$7T Cash Waiting On The Sidelines
-If Tariffs / Conflict Gets Sorted – Nothing Holding Us Back (Besides Government Deficit)
So far, every time the market has gained 20% in 2 months, the following 12 month returns have always been up by an average of 30%. Yes, it’s true that past history doesn’t indicate future performance (and anything could happen) but it is worth considering that the market can have the potential to move even higher, despite the economy constantly seeming on the brink of collapse…
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