If the June 17 low in the S&P holds, the Great Inflation-Scare Bear Market of 2022 will have lasted all of 165 calendar days, with a max drawdown of just 23%.
That’s a veritable walk in the park compared to your average bear market decline of 36% over 289 days.
With CPI at 9%, Europe at war, supply chains in chaos, and all the mistakes we’ve made, you’d think this would be one of the worse-er bear markets of all time, not one of the better ones.
But after today’s employment report, I’m calling it: It’s over. The S&P will make a new all-time-high of 4,750 before it makes a new bear-market low of 3,650.
(Note: This newsletter is set to self-destruct the moment the S&P ticks 3,649. And we will never, ever mention it again.)
With 528,000 jobs created this month and 10-year yields at 2.80%, things are feeling distinctly Goldilocks to me.
The Fed will try to talk us back down, but that may just coil the spring and ultimately send us higher.
Risks abound, of course. If Yogi were here, he’d surely tell you it ain’t over till it’s over, and it could well be deja vu all over again.
He might also give us some of his sage advice, like, “you can observe a lot just by watching.”
So, let’s observe some charts.
If CPI has peaked, the market has probably bottomed, no?
Headline CPI will still be ugly — just under 9% YoY, probably — for at least two more months. But the August MoM number annualizes to just 3.87%. Markets are forward looking and sub 4% CPI, even if it’s a year away, is something to look forward to.
You can now fill up in Oklahoma for less than $3 a gallon:
And we all know the future tends to happen first in Oklahoma. (Or is that California? I get those two confused.)
You can now get a mortgage for less than 5%:
The average US 30-year mortgage rate is 4.99% and falling.
House prices are falling, too:
This will take forever and a day to feed through to CPI, but housing prices were probably the biggest upside risk to inflation — and that’s not looking like much of a risk anymore.
Did the market misread the Fed? Or is the Fed misreading the market?
The expected trajectory of Fed funds shifted dramatically lower after the last FOMC meeting. If you think that’s because the market misinterpreted Powell’s message, then this is a bearish chart. But if, like me, you think the market leads the Fed more than the Fed leads the market, this is a bullish chart.
Either way, the Fed is getting what it wants:
The commentariat mocked Powell for saying he hoped job openings would fall without unemployment rising, but that seems to be exactly what’s happening. Job openings fell by 500,000 in May while layoffs remained at just 1%. And there is probably more of that to come: This week, Spotify said last week that business is actually better than expected, but it is “proactively reducing” hiring “in anticipation of a potential slowdown.” That is reading straight from the Fed’s hymn sheet.
We’re all doing our part:
With the personal savings rate back down to 5.3%, consumers seem to be spending down their stimulus-inflated bank accounts just enough to keep consumption constant, but no more. How very responsible of us. Visa management suggested the same week, noting they “haven’t seen any evidence of consumers pulling back on spending.”
If we are already in a recession, we might just spend our way out of it. In which case, it’s over: June 17 was the bottom.