Inflation Hotter Than Expected – Momo Buys The Bad News, JP Morgan CEO Says Recession Not 'Off The Table'

To gain an edge, this is what you need to know today.

Hotter Inflation 

Please click here for an enlarged version of the chart of SPDR S&P 500 ETF Trust SPY which represents the benchmark stock market index S&P 500 (SPX).

Note the following:

  • The chart shows that the stock market is hovering above the trendline.
  • The chart shows when the Consumer Price Index (CPI) was last reported, the stock market fell as CPI was hotter than expected.
  • The difference between when CPI was reported last time as shown on the chart and the CPI release this time is that stock market euphoria has significantly expanded.  
  • The chart shows that the stock market is rising after the CPI report today.
  • CPI came hotter than expected. Here are the details:
    • Headline CPI came at 0.4% vs. 0.3% consensus and 0.2% whisper number.
    • Core CPI came at 0.4% vs. 0.3% consensus and 0.2% whisper number.
  • On a micro level, the stock market quickly dipped after the release of the hotter than expected CPI, but then the momo crowd stepped in to aggressively buy the dip.
  • If the stock market was in a rational phase, it would have seen a big drop today on the hotter than expected CPI. However, the stock market is in a euphoric phase. In a euphoric phase, bad news is good news, and good news is great news. A characteristic of the euphoric phase is that all news is bought, irrespective of what it is.  
  • Momo gurus have a new highly flawed narrative to persuade their followers to buy stocks. The narrative is that year-over-year inflation came at 3.2% vs. 3.1% consensus.
  • As we have shared with you several times along the way, looking solely at year-over-year is like driving while looking only in the rearview mirror. Investors should look at month-over-month for the last three months – this is like looking through the windshield. Investors should also look at year-over-year, but that is like looking through the rearview mirror.  When you read about momo gurus’ narrative, keep front and center that momo gurus’ job is to run up the stock market under the disguise of analysis.
  • Jamie Dimon, the CEO of JPMorgan Chase & Co JPM, is the most respected banker in the world. Moreover, he has access to a large amount of data as JPM is the largest bank in the U.S.  Dimon is saying that a recession is not “off the table.” According to Dimon, the world is expecting a 70% - 80% chance of a soft landing. Dimon said, “The chance of a soft landing in the next year or two is half that. The worst case would be stagflation.”
  • As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents. Please scroll down to see the protection band.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Amazon.com, Inc. AMZN, Meta Platforms Inc META, Microsoft Corp MSFT, NVIDIA Corp NVDA, and Tesla Inc TSLA.

In the early trade, money flows are neutral in Apple Inc AAPL.

In the early trade, money flows are negative in Alphabet Inc Class C GOOG.

In the early trade, money flows are mixed in SPDR S&P 500 ETF Trust and Invesco QQQ Trust Series 1 QQQ.

Momo Crowd And Smart Money In Stocks

The momo crowd is aggressively buying in the early trade. Smart money is selling stocks in the early trade.

Gold

The momo crowd is buying gold in the early trade. Smart money is inactive in the early trade.

For longer-term, please see gold and silver ratings.

The most popular ETF for gold is SPDR Gold Trust GLD. The most popular ETF for silver is iShares Silver Trust SLV

Oil

The momo crowd is selling oil in the early trade. Smart money is inactive in the early trade.

For longer-term, please see oil ratings.

The most popular ETF for oil is United States Oil ETF USO.

Bitcoin

Bitcoin BTC/USD is range bound.

Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.

Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider a protection band consisting of cash or Treasury bills or short-term tactical trades as well as short to medium term hedges and short term hedges. This is a good way to protect yourself and participate in the upside at the same time.

You can determine your protection bands by adding cash to hedges. The high band of the protection is appropriate for those who are older or conservative. The low band of the protection is appropriate for those who are younger or aggressive. If you do not hedge, the total cash level should be more than stated above but significantly less than cash plus hedges.

It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash. When adjusting hedge levels, consider adjusting partial stop quantities for stock positions (non ETF); consider using wider stops on remaining quantities and also allowing more room for high beta stocks.  High beta stocks are the ones that move more than the market.

Traditional 60/40 Portfolio

Probability based risk reward adjusted for inflation does not favor long duration strategic bond allocation at this time.

Those who want to stick to traditional 60% allocation to stocks and 40% to bonds may consider focusing on only high quality bonds and bonds of seven year duration or less. Those willing to bring sophistication to their investing may consider using bond ETFs as tactical positions and not strategic positions at this time.

The Arora Report is known for its accurate calls. The Arora Report correctly called the big artificial intelligence rally before anyone else, the new bull market of 2023, the bear market of 2022, new stock market highs right after the virus low in 2020, the virus drop in 2020, the DJIA rally to 30,000 when it was trading at 16,000, the start of a mega bull market in 2009, and the financial crash of 2008. Please click here to sign up for a free forever Generate Wealth Newsletter.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.

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Posted In: EconomicsMarketsGeneralcontributorsCPIExpert IdeasGoldInflationJamie DimonMagnificent SevenOil
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