Doug Kass recently shared this staggering chart. It shows the inflows to stock funds since November exceed the total inflows of the last 12 years. Doug points out that one of the legendary Bob Farrell’s rules (listed below) is that “individuals buy most of the top and buy the least at the bottom.”
Consumer prices rose in March at their fastest pace in nearly nine years, with the headline CPI rising 0.6% (consensus 0.5%) and the core CPI, excluding food and energy, rising 0.3% (consensus 0.2%). The main contributor to higher inflation in March was gasoline prices, which rose +9.1% m/m. Notably, the report revealed a rebound in core services prices as the U.S. economy reopens, with food away from home increasing 3.7%, while “limited services meals” jumped 6.5% for the year. While the upside surprise in inflation was small, it could be important as it increases the odds that inflation, as measured by the personal consumption deflator, will remain solidly above 2% y/y from April of this year well into 2022. Fed officials have indicated that they expect PCE inflation to average around 2.4% y/y in 4Q21, but that they will regard increases later this year as likely transient. As shown in the graph, the PCE deflation has recently tracked headline CPI closely, and our estimate of the March PCE deflator is now 2.3% y/y. However, if inflation prints continue to run solidly above target, it could create some communication challenges for the Fed. As inflation is expected to rise over the next few quarters, the Fed will certainly be closer to its criteria for raising short-term rates, but more imminently, it will be closer to its criteria for tapering, which simply requires significant progress toward 2% inflation and maximum employment. Investors should continue to manage their duration of fixed income assets carefully and consider the possibility that tapering could happen sooner than the market expects.
-JP Morgan
Happy Monday. Good Luck out there this week.
Global Spotlight
Biden’s climate summit. The United States will host its two-day virtual Leaders Summit on Climate on April 22-23. The summit is a key part of President Joe Biden’s attempt to increase Washington’s international role on climate matters after his predecessor exited the Paris Agreement in 2019.
Developments in the U.S.-China dynamic on climate. Biden’s climate summit will also help indicate the breadth of tensions between the world’s top two carbon-emitting countries. Under the administration of former U.S.
Germany’s Greens select their chancellor candidate. On April 19, Germany’s Greens will decide which of its two co-leaders will be the party’s chancellor candidate for the September federal election.
New AI rules from the European Commission. EU Competition Commissioner Margrethe Vestager will unveil new draft rules on the use of artificial intelligence (AI) systems on April 21. The rules are expected to include bans on the use of AI in surveillance systems and using AI to create social credit systems.
Stratfor.com
Economic Calendar
Briefing.com has a good U.S. economic calendar for the week. Here are the main U.S. releases.
The Flash PMI will be important this week.
Briefing.com
Last Weeks Numbers
Review Last weeks numbers here.
Here is a review of what happened last week. A slow grind higher. At these levels, the market looks a bit toppy. With earnings starting, a buy the rumor sell the news situation might be setting up. Jill Mislinski, from Advisor Perspective, does a good job, as always, in pointing out the metrics each day.
Earnings
Source I/B/E/S data from Refinitiv
Aggregate Estimates and Revisions
- 21Q1 earnings are expected to be 30.9% from 20Q1. Excluding the energy sector, the earnings growth estimate is 32.0%.
- Of the 44 companies in the S&P 500 that have reported earnings to date for 21Q1, 84.1% have reported earnings above analyst expectations. This compares to a long-term average of 65% and prior four quarter average of 76%.
- 21Q1 revenue is expected to be 9.4% from 20Q1. Excluding the energy sector, the growth estimate is 10.9%.
- During the week of April 19, 79 S&P 500 companies are expected to report quarterly earnings.
Of Note
Here’s a list of Farrell’s 10 rules:
- Markets tend to return to the mean over time
- Excesses in one direction will lead to an opposite excess in the other direction
- There are no new eras — excesses are never permanent
- Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways
- The public buys the most at the top and the least at the bottom
- Fear and greed are stronger than long-term resolve
- Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names
- Bear markets have three stages — sharp down, reflexive rebound and a drawn-out fundamental downtrend
- When all the experts and forecasts agree — something else is going to happen
- Bull markets are more fun than bear markets
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