Profiting on hot inflation

S&P 500 pause finally went from sideways to down, and might not be over yet. Credit markets aren‘t nearly totally weak – tech simply had to pause, so did semiconductors, and the Tesla downswing took its toll. Value though recovered the intraday downside, and VIX retreated from its daily highs – that may be all it can muster. I‘m looking primarily at bond markets for clues, and these reacted to the PPI figures with a further decline in yields.

At the same, inflation expectations are moving higher – the more you shorten the maturity, the higher they go, let alone RINF, their key ETF. Markets will be proven very wrong about the transitory inflation complacency – inflation rates aren‘t going to decline if you just leave them alone. And taper coupled with rate hikes hesitancy won‘t do the trick either.

S&P 500 is still primed to go higher – the only question is the shape of the current consolidation. Liquidity is still ample, the banking sector is strong, and the Russell 2000 isn‘t really retreating. As stated yesterday:

(…) The correct view of the stock market action is one of the micro rotations unfolding in a weakening environment – one increasingly fraught with downside risks. To be clear, I‘m not looking for a sizable correction, but a very modest one both in time and price. It‘s a question of time, and I think it would be driven by tech weakness as the sector has reached lofty levels. It‘ll go higher over time still, but this is the time for value and small caps in the medium term.

Precious metals are consolidating – it‘s almost a pre-CPI ritual, but under the surface, the pressure to go higher keeps building. I‘m looking for a strong Dec in gold and silver, with unyielding oil and copper gradually waking up. Cryptos aren‘t taking prisoners either.

Let‘s move right into the charts.

S&P 500 and Nasdaq outlook

S&P 500 finally declined, and the very short-term picture is unclear – is the dip about to continue, or more sideways trading before taking on prior highs? It‘s a coin toss.

Credit markets

HYG recouped some of the prior downsides, but the LQD and TLT upswings give an impression of a risk-off environment. Sharply declining yields aren‘t necessarily positive for stocks, and such is the case today.

Gold, silver and miners

Gold and silver look like briefly pausing before the upswing continues – miners are pulling ahead, and the ever more negative real rates are powering it all.

Crude oil

Crude oil bulls continue having the upper hand, and oil sector is also pointing at higher black gold prices to come. Energy hasn‘t peaked by a long shot.

Copper

Copper went at odds with the CRB Index, but that‘s not a cause for concern. It‘ll take a while, but the red metal would swing upwards again.

Bitcoin and Ethereum

Bitcoin and Ethereum are briefly consolidating, and a fresh upswing is a question of shortening time.

Summary

S&P 500 remains momentarily undecided, but the pullback shouldn‘t reach far on the downside – the bears are having an opportunity to strike on yet another hot inflation number. This isn‘t transitory really as I‘ve been telling you for almost 3 quarters already. Needless to say, the fire under real assets is being increasingly lit – more gains in commodities, precious metals, and cryptos are ahead as inflations run rampant on the Fed‘s watch.