Decoding the Signals on Inflation Amid Record Market Highs, Strong

The path of least resistance remains higher for U.S. equities. Earnings growth and the ongoing economic recovery continue to overpower fear over inflation and potential monetary-policy changes. Supply constraints have been offset by robust demand and sustainably high profit margins. Rates also remain historically low, and we suspect some of the recent flattening in yield-curve spreads is likely overdone.

The technical backdrop remains bullish as the market enters a strong seasonal period. Records continue to be set across the major U.S. averages, including recent breakouts on the RUT [

Russell 2000
] and TRAN [

Nasdaq Transportation Index
]. We reiterate our year-end price objective on the SPX [

S&P 500
] of 4,625.

—Craig W. Johnson

The Heat Is On

The Weekly Speculator

Marketfield Asset Management
Nov. 4: All the signs are that the U.S. economy risks significantly overheating, and it was interesting to hear the comments from Fed Chairman Powell on Wednesday, stressing how strong demand is for both goods and services in the U.S. and how stretched supply lines are.

This is a very different message from that given toward the end of summer, when the threat of the Delta variant made the Federal Open Market Committee unwilling to admit just how strong the demand rebound had been. Of course, this message has been absorbed by the equity market, which has enjoyed a very strong earnings season, with most companies able to navigate logistical strains and pass on cost increases to customers.

Wednesday’s FOMC announcement was absorbed without complaint, and by the close, all three major indexes has risen to all-time highs. This is particularly significant for the [Russell 2000], which has finally completed an eight-month consolidation of its powerful late-2020/early-2021 gains. Missing so far is any meaningful participation by global benchmarks, most of which remain in consolidation or correction patterns, reflecting a strong preference by investors for U.S. equities.

—Michael Shaoul and Timothy Brackett

Are You Underwater?

Out of the Box
B. Riley Securities
Nov. 4: “Transitory” is an interesting word. The Fed can define it as it likes, but I see inflation in transit all across the economy, with some segments being hit especially hard. The talk in the press is about what it is doing to households and supply chains. It is also important to consider what it does to investors.

Basically, either through appreciation or through yield, if you are earning less than 5.4%, you are underwater. For a person, it means a declining lifestyle. For a…