Anticipating More Inflation

The PCE Price Index Excluding Food and Energy, also known as the Core PCE Price Index, makes it easier to see the underlying inflation trend by excluding two categories – food and energy – where prices tend to swing up and down more dramatically. The Core PCE Price Index is closely watched by the Federal Reserve as it conducts monetary policy.

It is crucial to prepare for adjustments in Fed policy and the credit markets, and adjust your trading accordingly, given the persistence of high inflation.

As seen above, The Fed-preferred inflation gauge (core PCE) remained elevated at 4.9% in August, as data released Friday remains far above the Fed’s goal of 2%. It is worthwhile to think about how unique the selloff has been, why some anticipated it, and how might all of us trade better in the future.

I have one specific vehicle that I glance at daily, which tells me a lot about risk appetite and future equity returns. Anyone can look at this vehicle and quickly see where the market is headed.

In response to high inflation, central banks have aggressively raised rates quickly. The speed of these hikes will influence our economy, and the current stock market carnage is a side effect.

One of the many areas we watch are various credit markets and spreads. I follow the junk bond market. It usually leads the stock market, since the credit market is cyclical and tends to be inter-correlated with the economy. Please notice the Bloomberg High Yield Bond ETF (JNK) high yield corporate bond fund has taken out its previous low in the summer. The price tells us something important about the stock market’s direction. 

On new yearly lows, unless we see that reverse, take it as a harbinger that the selling in the whole market is not over.

Please take a moment to watch Mish’s latest media clips where she outlines the macro down to the micro. We also invite you to become a MarketGauge subscriber for more regular analysis. You can sign up for a free consultation with Rob Quinn, our Chief Strategy Consultant, by clicking here. He’ll help you learn more about my top-rated risk management trading service.

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Follow Mish on Twitter @marketminute for stock picks and more. Follow Mish on Instagram (mishschneider) for daily morning videos. To see updated media clips, click here.

Mish in the Media

Mish talks hedges and stock picks under the current environment in this appearance on BNN Bloomberg.

Mish says yes to Palantir, no to Bed, Bath and Beyond in this appearance on CNBC Asia.

Mish talks about a few of her picks, going short and why metals are in focus in this appearance on TD Ameritrade.

Mish talks putting your cash to work in this appearance on Business First AM.

Mish and Neil Cavuto discuss Central Bank credibility, US policy and more inflation to come on Fox Business’s Coast to Coast. Unless this is a spectacular bottom, preserving cash is smart.

Read Mish’s latest article for CMC Markets, titled “When to Put Cash Back to Work“.

Mish talks about key averages, yields and commodities on this appearance on Bloomberg TV.


ETF Summary

  • S&P 500 (SPY): 353 support, 358 resistance.
  • Russell 2000 (IWM): 162 support now, 168 resistance.
  • Dow (DIA): 285 support, 289 resistance.
  • Nasdaq (QQQ): 262 support, 268 resistance.
  • KRE (Regional Banks): 57 support, 60 resistance.
  • SMH (Semiconductors): 182 support, 188 resistance.
  • IYT (Transportation): 194 support, 198 resistance.
  • IBB (Biotechnology): 114 support, 119 resistance.
  • XRT (Retail): 55.55 support, 58.56 resistance.

Mish Schneider

MarketGauge.com

Director of Trading Research and Education

Wade Dawson

MarketGauge.com

Portfolio Manager