Did you think inflation was just going to come and go?
Just like that? And now we all move on?
I highly doubt that it's that simple.
According to the bond market, inflationary pressures are likely just getting started.
This is a $120 Trillion asset class that's so big there's just no where to hide.
For instance, take a look at the Inflation-protected Treasury Securities, that we refer to as TIPs. And when you compare them to nominal yielding Treasury Bonds, you'll notice the new 52-week highs this week in the ratio between the two.
This is what the bond market is pricing in for inflation. Not the angry economist on the internet. Not the pretty lady on basic cable.
This is the bond market. This is whose opinion actually matters:
How come so many investors get mad that an index, which was designed to buy more of the best stocks and less or none of the worst stocks, owns more of the best stocks and less or none of the worst stocks?
The S&P500 is up over 21% since the October low last year. In fact, last week marked the 1 year anniversary of this bull market.
Meanwhile, the Nasdaq100 is up 40% over the past 12 months (because it's a bear market?)
During this time, Technology is up 46%, Communications is up 42% and Industrials are up 22% - representing the 3 best performing groups of stocks.
Many investors think it's not coming and that the market is going to crash instead.
In fact, CTAs have never been this short. The last few times they were anywhere near this bearish, stocks went on to have some of the greatest rallies in history. I remember them well:
This has to be one of the world's most important trends right now. How could it not be?
You hear all this nonsense about the S&P493 and how it's only 7 stocks going up.
But those are just lies. That's not how the market works, and that is certainly not what's been happening this year.
The real trend here is in the outperformance of the largest companies, particularly mega-cap growth, relative to other indexes with more diversified sector exposure and market-caps.
This is the Nasdaq100 making new all-time highs relative to the much broader Russell3000 Index:
But the bottom line is that we're now well into month #3 of this correction, since the new 52-week highs list peaked back in July.
The fact that markets are a mess is not a big deal. The bigger question is more about how long it will take to resolve, and which stocks are holding up the best during this seasonally weak period.