Hotter PPI Follows Hotter CPI, But Momo Crowd Ignoring Inflation On Trump Hopium

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

Hotter PPI

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 the Consumer Price Index (CPI) dip was aggressively bought yesterday.
• The chart shows that the stock market is now back at the low band of the micro resistance zone.
• Based on historical precedence, the stock market should have fallen over 1000 DJIA points yesterday on hotter CPI data. The momo crowd extremely aggressively bought the dip, resulting in the stock market closing down only 225 DJIA points.
• A new narrative from momo gurus has taken hold that inflation no longer matters because of their complete faith in President Trump's leadership.
• The stock market also completely ignored Powell's response to higher CPI data.  Powell said:
  • Policy will remain restrictive.
  • Progress is being made on inflation, but it is not yet at the goal.
• Last night, stock market futures ran even higher on aggressive momo buying.  In the early trade, the stock market gave up gains in stock futures prior to the release of the Producer Price Index (PPI), as many investors took advantage of the strength to sell on concerns that Trump will announce reciprocal tariffs today.
• Inflation at the producer level came hotter than expected.  Here are the details:
  • Headline PPI came at 0.4% vs. 0.2% consensus.
  • Core PPI came at 0.3% vs. 0.3% consensus.
  • Of utmost importance to prudent investors is that the PPI data for prior months has been significantly revised upwards. 
• The momo crowd initially extremely aggressively bought stocks on hotter PPI.  The buying was met by selling from investors who took notice of the prior revisions to the upside.  The momo crowd bought the dip as other investors sold.
• A battle royale is shaping up between investors who are concerned about inflation and investors who believe inflation is not of consequence anymore because of President Trump's leadership.
• In The Arora Report analysis, there is merit to President Trump’s leadership in pro-growth policies, reducing waste and fraud in the government, deregulation, tax cuts and tariffs.  Having said that, it is a grave mistake to ignore inflation.  
• Back in September 2024, when the Fed cut interest rates by 50 bps, we shared with you the contrary Arora call that the Fed was making a policy mistake.  The CPI and PPI data, especially the prior month revisions, now confirm that the Fed made a mistake in September.
• The Arora Report has made dozens of contrary calls over decades regarding the Fed.  One hundred percent of the prior calls have proven correct.  So far, the call about the September 2024 rate cuts has proven spot on.  Not only has the subsequent inflation data shown that the Fed made a mistake, but the yield on the 10-year bond has risen about 100 bps since the Fed's 50 bps rate cut.
• Initial jobless claims came at 213K vs. 217K consensus.
• Retail sales will be released tomorrow at 8:30am ET.
• Prudent investors need to be aware that President Trump is threatening to impose reciprocal tariffs later today.  There is a press conference scheduled for 1pm ET.  Consider staying alert.

Layoffs

More layoffs are coming in tech.

In important news, oil giant Chevron Corp CVX will cut 20% of its workforce.

Seventy-five thousand federal workers have opted into Trump's deferred resignation program.

Ultimately, these layoffs will start having an effect on the economy.

Europe

European stocks are seeing buying after Trump saying he is initiating talks with Russia's Putin to end the Ukraine war.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Alphabet Inc Class C (GOOG), NVIDIA Corp (NVDA), and Tesla Inc (TSLA).

In the early trade, money flows are neutral in Apple Inc (AAPL), Amazon.com, Inc. (AMZN), Microsoft Corp (MSFT), and Meta Platforms Inc (META).

In the early trade, money flows are positive in S&P 500 ETF (SPY) and Invesco QQQ Trust Series 1 (QQQ).

Momo Crowd And Smart Money In Stocks

Investors can gain an edge by knowing money flows in SPY and QQQ.  Investors can get a bigger edge by knowing when smart money is buying stocks, gold, and oil.  The most popular ETF for gold is SPDR Gold Trust (GLD).  The most popular ETF for silver is iShares Silver Trust (SLV).  The most popular ETF for oil is United States Oil ETF (USO).

Bitcoin

Bitcoin is range bound.

Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.  The proprietary protection band from The Arora Report is very popular.  The protection band puts all of the data, all of the indicators, all of the news, all of the crosscurrents, all of the models, and all of the analysis in an analytical framework that is easily actionable by investors.

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.

A protection band of 0% would be very bullish and would indicate full investment with 0% in cash.  A protection band of 100% would be very bearish and would indicate a need for aggressive protection with cash and hedges or aggressive short selling.

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 five 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.