Fed's Favorite Inflation Gauge Disappoints Both Stock Market Bulls And Bears

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

PCE

Please click here for a 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 consolidating right below the mini resistance zone.
• The RSI pattern on the chart shows that the stock market can go either way.
• The stock market is up this morning due to positive earnings from Salesforce Inc CRM. Salesforce is in the Global X Dow 30 Covered Call ETF DJIA. Buying is also coming in due to strong earnings from Snowflake Inc SNOW and Synopsys Inc SNPS. All three companies are benefiting from AI. 
• The just released economic data shows that consumer spending is finally beginning to taper from excessive levels relative to incomes. Here are the details:
  • Personal spending came at 0.2% vs. 0.2% consensus.
  • Personal income came at 0.2% vs. 0.2% consensus.
• The latest data on the Fed’s favorite inflation gauge PCE has disappointed both bulls and bears. Bears were pinning their hopes that PCE would be worse than expected and thereby cause a big drop in the stock market. Bulls were pinning their hopes on PCE triggering another leg of the stock market rally. PCE came inline with expectations, a scenario that neither bulls nor bears had expected. Here are the details:
  • Headline PCE came at 0.0% vs. 0.1% consensus.
  • Core PCE came at 0.2% vs. 0.2% consensus.
• Weekly Initial Claims came at 218K vs. 215K consensus. This indicates that the jobs picture is staying very strong.
• 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.

Europe

Eurozone inflation has fallen more than expected. Flash CPI came at 2.4% year-over-year vs. 2.7% consensus. Flash Core CPI came at 3.6% year-over-year vs. 3.9% consensus.

China

PMIs are leading indicators. Leading indicators carry heavy weight in our adaptive ZYX Asset Allocation Model with inputs in ten categories. In plain English, adaptiveness means that the model changes itself with market conditions. Please click here to see how this is achieved. One of the reasons behind The Arora Report’s unrivaled performance in both bull and bear markets is the adaptiveness of the model. Most models on Wall Street are static. They work for a while and then stop working when market conditions change.

China’s Manufacturing PMI came at 49.4 vs. 49.7 consensus. Non-manufacturing PMI came at 50.2 vs. 51.1 consensus. These numbers indicate that the Chinese economy is weakening.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Apple Inc AAPL, Alphabet Inc Class C GOOG, Meta Platforms Inc META, Microsoft Corp MSFT, NVIDIA Corp NVDA, and Tesla Inc TSLA.

In the early trade, money flows are negative in Amazon.com, Inc. AMZN.

In the early trade, money flows are positive 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 buying stocks in the early trade. Smart money is 🔒 in the early trade. To see the locked content, please click here to start a free trial.

Gold

The momo crowd is selling gold in the early trade. Smart money is 🔒 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 virtual OPEC+ meeting is taking place.

The momo crowd is like a yoyo in oil in the early trade. Smart money is 🔒 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.

Markets

Our very, very short-term early stock market indicator is 🔒. This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

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 holding 🔒 in cash or Treasury bills or allocated to short-term tactical trades; and short to medium-term hedges of 🔒, and short term hedges of 🔒. 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 2008 financial crash, the start of a mega bull market in 2009, the COVID crash, the post-COVID bull market, and the 2022 bear market.  Please click here to sign up for a free forever Generate Wealth Newsletter.