Milan Cacic
August 12, 2022
Money Education Financial literacy Social media Economy In the news News Weekly update Weekly commentaryINFLATION DOWN, MARKETS UP!
At first glance you may think that headline inflation at 8.5% and core inflation at 5.9% are not great numbers. However, the market is watching the trajectory of future inflation and the month over month increases. Inflation numbers were flat month over month and core CPI, which excludes food and energy, rose 0.3% in July. Also of note, the data that came from the New York Fed and the University of Michigan pointed to a decline in both short and long-term inflation numbers. Longer-term inflation expectations are now down to 2.44%.
As we have stated in prior weekly updates, it's hard to get bullish on the market until there is some expectation of when the Fed can stop raising rates. We also know that the Fed will stop raising rates when inflation gets back down to a more normalized rate. So all this inflation news is very good. Maybe this is the beginning of the end! If that is the case then the charts below give us some idea what may happen over the next 24-months. As you can see from the first chart, when we have a significant pullback in the market the 12- and 24-month returns on average are 30.6% and 59.8% respectively. Combine this with the second chart which shows that after the US midterm elections, the market historically averages 15.1% in the following 12 months. Midterm elections occur on November 8 of this year.
I've also included a piece from our CIBC economics Team entitled "The economic gift that keeps on giving".
As always if you have any questions, please feel free to give us a call at any time.
Have a great weekend.
Milan