08/10/2022
$ES_F $SPY $NQ_F $QQQ
Growth and inflation are predictable because they are cyclical.
If something is cyclical, it moves in trends.
And trends are, by their nature, predictable.
We classify them as a cycle.
The year-over-year rate of changes in growth, and inflation as far back as world war ll, and we get cycles.
Together, the trends in growth, and inflation from what’s called the business cycle, and the larger demographic is the cycle made up of growth, and inflation which drives asset class, and returns, this cycle thrives within the economic cycle.
Creating cyclical trends organically as the population grows, and adjusts.
The economic cycle rotates continually in three phases, phases l, ll, and lll.
1) Asset markets trend along with the economic data.
2) Asset markets tend to front-run the economic data.
Asset prices are largely driven by just two data points “liquidity” and “positioning”.
The market is never wrong about the business cycle,
In fact, the asset markets will front-run the economic data.
This is what we witnessed in the month of July when the June CPI reading came in hotter, and inflation hit the 40-year high again.
We have an indication that inflation is peaking.
These metrics contribute to Inflation,
1) Rental Apartments (Down )
2) Existing home sales (Down)
3) Used car index (Down)
4) Airfares (Down)
5) Furnishings (Down)
6) Supply Chain Containers (Down)
7) Energy (Down)
8) Food (Down
9) Lumber (Down)
In the month of July inflation numbers are out, and the numbers came in cooled off.
U.S inflation year over year has come in below the forecast at 8.5% with an estimate of 8.7%, down from the June's reading of 9.1%, dropping for the first time since April 2022, and while month over a month has come in unchanged.
These data points have come in line with what we have expected, the above (8) metrics are slowly cooling off.
Seeing the U.S equity markets rally last month into August is no surprise as markets are a leading indicator.