Fed Chair Jerome Powell has an uphill battle ahead of him. Convince the American people that higher inflation will be good for them? The whole issue here is that the Fed is trying to get some more power to help the economy. If inflation rates are too low, the Fed can’t actually lower them to boost the economy. Now, much of the analysis I have read see this new Fed framework as kind of a big nothing-burger, unless it is coupled with a ton of bond buying, lending programs, and real unemployment goals. If it does not come accompanied by some steps to enforce the framework, then it is rather toothless.
I think the concern I have heard from many traders is this scenario: what if we get 2% inflation, more mass layoffs…Plus, a stock market that is essentially a smokescreen? We might be longing for those half-full days that I described yesterday.
Speak of those days, Salesforce added some thickness to the market smokescreen yesterday with a 26% increase, its highest ever. The company’s gains largely pumped the market and continued to be a daily trend: tech stocks taking the markets to new record highs.
Here are the 7 seven criteria for a bubble:
- Price gain of 555% over 52 months
- The rising trend for four years or more
- Gains of over 119% over the past 12 months
- 55.7% premium to its 200-day moving average
- 10-day average true range (ATR) of over 2.4% (volatility)
- Prime momentum divergence
- Churning price action or a V-shaped reversal pattern.
The Tech sector has notched three of them…
For those of you who are screaming…None of this is sustainable…Well, I agree with you, but I wanted to back my feelings with some data. I was reading a whitepaper by James Montier that essentially argues the market’s combination of overoptimism and overconfidence is a deadly combination. Montier states that the “world has forgotten about risk” using the definition from Elroy Dimson who said, “Risk means more things can happen than will happen.” The paper states that the market is not looking over the valley of COVID-19, but rather double-counting, like it usually does. Montier believes the market is a forward-thinking device, but that forward-thinking right now is only seeing a Panglossian future of hope.
The paper concludes by stating to invest for uncertainty and to diversify your portfolio with low-risk assets.
Ok, but hear me out. What if I were to tell you 40% of the world is right now back in expansion mode. Looking at the Preliminary Composite Purchasing Manager’s Index (PMI), a measure of manufacturing and service sectors, the index was its highest since February 2019. Durable goods orders rose for the third month in a row. My point is that right now, nothing seems to make sense…
Below you can find some of the most notable stocks to watch today.
This grocery outlet chain calls itself “an extreme low-cost grocer.” GO released Q2 net sales that increased 24.5% YoY and earnings per share $0.04 above the expectation. GO straddles that line between grocery and discount, which is why the stock has been on a steady upward trajectory.