Why is Wall Street So Happy?
By Rick Pendergraft
“Stagflation occurs when the economy isn't growing but prices are, which is not a good situation for a country to be in. This happened to a great extent during the 1970s, when world oil prices rose dramatically, fueling sharp inflation in developed countries. For these countries, including the U.S., stagnation increased the inflationary effects.”
The definition above (italics mine) is a direct paste from Investopedia.com. When the market rallied sharply after the Fed meeting on Wednesday, I could not get stagflation out of my head. My colleague, Charles Delvalle, wrote an article about stagflation just 10 days ago, but I felt it was necessary to mention it again.
Sure, the Fed changed their bias from “firming” to neutral, but they reiterated their concern about inflation being at elevated levels. Meanwhile, just about every economic indicator released these days is showing that the economy is slowing, if not contracting. Just last week the Leading Indicators report came in at -0.5, which was not only lower than expected, but significantly in the red. This is the indicator’s second consecutive month below zero and the third in the last four.
According to Briefing.com, “the recession alarms go off when the cumulative 6 month decline exceeds -1% amid a string of three or more consecutive monthly declines. No recession warning bells yet.” The cumulative number for the last five months is -0.2. That makes next month’s Leading Indicators report extremely important. If negative again, it would mark the third consecutive such month. More importantly, depending how low the number is, the cumulative decline for six months could reach the negative one-percent level. If it’s -0.8 or worse, or if the February figure is revised downward (as January’s was), it could send dangerous smoke signals about the U.S. economy.
I don’t necessarily recommend using economic indicators as a means for short-term trading. But you certainly want to keep an eye on economic data and consider making adjustments to your portfolio accordingly.
For example, if you’re heavily weighted in equities in your 401K, think about allocating more into conservative funds. If your regular portfolio is heavily weighted in equities, take some money off the table and either hold it in cash or purchase some of the inverse funds that I discussed in my March 12 article.
It isn’t time to hit the panic button yet, but it is time to make some plans. As anyone living in South Florida knows during hurricane season, you want to get your supplies before a storm appears on the horizon.
If the economic numbers don’t start improving soon, the investment storm could be heading right at us.
Happy Trading,
Rick
[Ed. Note: Rick Pendegraft has become a recognized expert at combining fundamental and technical analysis with the careful study of investor sentiment. To put his 20 years of market success to work for you, please consider his Triple Wave Investor advisory service. Click here to learn more]
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Looking for a Rebound in
Durable Goods Orders
By Rick Pendergraft
The economic calendar isn’t too full this week, but there is at least one report every day that could move the market. The durable goods report due out on Wednesday could be the most important one this week. After January showed a significant decline (-7.8%), analysts are expecting a rebound in the February report (+3.5%).
Another one to keep an eye on is the personal income report for February, due out on Friday. One of the biggest influences on inflation right now appears to be wages. If personal income exceeds expectations, it could cause inflation worries to creep into everyone’s mind again.
Date |
Time (ET) |
Statistic |
For |
Market
Expects |
Prior |
26-Mar |
10:00 AM |
New Home Sales |
Feb |
985K |
937K |
27-Mar |
10:00 AM |
Consumer Confidence |
Mar |
109 |
112.5 |
28-Mar |
8:30 AM |
Durable Orders |
Feb |
3.50% |
-7.80% |
29-Mar |
8:30 AM |
GDP-Final |
Q4 |
2.20% |
2.20% |
30-Mar |
8:30 AM |
Personal Income |
Feb |
0.30% |
1.00% |
30-Mar |
8:30 AM |
Personal Spending |
Feb |
0.30% |
0.50% |
30-Mar |
9:45 AM |
Chicago PMI |
Mar |
49 |
47.9 |
30-Mar |
10:00 AM |
Construction Spending |
Feb |
-0.60% |
-0.80% |
30-Mar |
10:00 AM |
Mich Sentiment-Rev. |
Mar |
88.8 |
88.8 |
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