Tuesday morning will be the release of the next US CPI reading, eagerly awaited by the investment community.
Opinions, of course, are being judiciously offered, ranging from continued bullish expectations to bearish disbelief. It’s an environment that remains heavily news-driven and opaque to navigate, specifically for longer-term investors.
From my point of view, it’s always advantageous to take a step back and look at the forest rather than the single trees. There are few buyable high-quality stocks available right now, which is one of the strongest heralds of a new bull market. Many stocks are lacklustre, and the biggest strength is seen in a very narrow segment of the market – a handful of small semi-conductors and some sort of a new meme frenzy.
As I’ve been alluding to for the last few weeks and months, I believe this rally is largely a hot-air bear bounce, and is bound to roll over at some point unless new powerful leadership emerges.
However, a bigger number of media reports (e.g. here or here) lately remarked that the CPI report could be a catalyzer for a sell-off … and from a contrarian perspective, if most people are on one side of the stock market boat, it will probably topple over in the other direction. Additionally, potential manipulation of the CPI might also lead to a downside (positive) surprise.
Thus we might see this market rally another few weeks on continued limited volume.
Or it might roll over, for example on a negative CPI miss or the probability that most of this rally was already discounting lower inflation data and the stats release will become a ‘sell the news’ event.
Bottom line, no one knows what will happen until it happens. Thus, I have a plan for wherever the market will turn, be it tomorrow, next week or next month. I have long- and short ideas, and I can sit in cash. What will you do?
