The market continues to bounce around with nearly every piece of macro news between recession, inflation, more Fed/less Fed, and crude up/crude down to name just a few things that impacted recent trading. My work continues to be quite clear, and I suggest stopping watching every data point looking for a sliver of bullish news to support an optimistic outlook. Yes, I know being a bear isn’t popular and we all have to be on alert because there is quite often a bull market in something. And yes, there will be a time to start becoming more constructive again, but my work says that point is still on the horizon.
In my view and based on my key indicators, the Fed is going to keep tightening until there is a clear 3-5 month trend that inflation is down and that the labor market is weakening. Last week’s data release of the monthly employment report did not support the view of the immediate collapse of the U.S economy and major deterioration in the labor market, which Fed officials have commented is one of the metrics they are watching closely and are trying to weaken a strong jobs backdrop. It’s hard to bet that this is not going to happen, and YES, at some point, the FOMC will slow the pace of tightening and then will likely evolve to data-dependent, but this needs some time to play out and there is still a huge gap between pivoting to going back to an outright easing policy stance. Granted, a Ukraine/Russia peace deal or anything that lowers energy pricing from the supply side, or something breaking that causes the Fed to change its focus.