Monday Takeaways: Watch This Corner of the Market

Shah Gilani|February 19, 2024

Well… that was a fun ride…

The markets yo-yoed last week as we learned Inflation rose more than expected… yet so did consumer sentiment.

The biggest lesson of the week?

Volatility rules.

But it’s not stocks you need to watch.

No… this corner of the market will tell us whether we’re going to see a sell-off or profit-taking… or we’ll see stocks float higher.

Find out what it is in my Monday Takeaways video.

Click on the image below to watch it.

 

Transcript

Hi, everybody. Shah Gilani here, with your Monday Takeaways on this President’s Day, in full color for you. Why? Because I’m about to put a little bit of color into the market.

The first takeaway comes from last week, the CPI numbers. Worse than expected. Volatility for a day, and then we had a little bit of a bounce, and then we had some more upsetting news and we got sold off a little bit. So the takeaway from the CPI bad numbers is volatility is going to continue to rule the market, bond market and the stock market, until we get CPI, PCE down where the Fed wants it. We’re not going to get that anytime soon.

So the takeaway there is, keep an eye on CPI, keep an eye on PCE, and as long as they are bouncing around, we’re going to continue to see volatility.

Next, we had PPI higher than expected. The Producer Price Index was higher than expected. What did we see? We saw selling on that, i.e., more volatility. All right, the takeaway from there is the same thing. Until we see producer prices come under control, maybe start to decline, we’re going to continue to see volatility in the bond market and in the stock market.

And third, your third takeaway from what happened last week, is it’s the bond market, people. All right? The takeaway isn’t so much what’s happening in the stock market, which I’ll get to in just a second, it’s what’s happening in the bond market. The kind of volatility we’re seeing in the bond market is extraordinary, and it’s not going to subside. As long as that kind of volatility persists in the bond market, we’re going to see stocks waver. We haven’t seen a collapse yet, but take it from me, bond market volatility is going to continue, and probably get worse.

It’s going to be a very tough year for bond traders. That spells an opportunity for people who get the timing right, but it puts pressure on stocks. Your takeaway there is, people, don’t be watching the stock market. Watch the bond market. That’s going to give you clearance. When the bond market volatility subsides, then it’s going to be much more clear sailing for stocks.

Lastly, this morning, as we head into the week, stocks are still up there. They are floating on some wonderful ether, and that ether happens to be the still expected rate cuts. Yes, so they’re down from the Fed fund’s futures expectations of seven or six at the beginning of the year, to maybe three or four.

Now, it doesn’t matter. Those expectations for cuts are still baked into stocks, and the worse the numbers we see in terms of a higher PPI or a higher CPI, those expectations start to get brought down to reality. And if they persist, guess what’s going to happen? We’re going to see profit taking. We’re going to see these elevated levels look like ether, look like fluff. And, we’re going to see profit take, which could turn into some hard selling, which could trigger some stops, which could result in some kind of correction. It’s out there, people.

So your takeaway from the volatility in the bond market is, until that subsides, the volatility in stock market’s going to increase. And until the numbers get demonstrably better in terms of the inflation trend being lower for longer, rates are going to remain higher for longer, and stocks starting to look a little bubblicious up here.

Those are your takeaways for the week. I’ll catch you guys next week. Cheers.