Don’t fight the FED, Trade like a Pro Instead: - In this article, we’ll delve into the overlooked economic facts to help readers understand the real picture behind the bullish markets. Let’s explore the nuances of inflation, beyond the headline numbers, shedding light on core and “super core” measurements. Discover how rising inflation might pave the way for more restrictive policies, quantitative tightening, and an increased likelihood of rate hikes.

Inflation perceptions can be misleading. While the headline inflation appears to have decreased from 7% to 3.8%, a closer look at core inflation, which excludes food and energy (volatile sectors), reveals a different story. Core inflation has actually risen to 4.6%, compared to its previous peak of 5.4%. Moreover, the Federal Reserve is now paying attention to the “super core” inflation as indicated at their FOMC meeting. This data reveals an increase in inflation of 0.2% in May and a 4.5% overall rise versus a year ago.

Therefore, Contrary to popular belief, inflation is on the rise as far as the Federal Reserve is concerned. This suggests an imminent shift towards more restrictive policies, quantitative tightening, and an increased likelihood of rate hikes. While the market attempts to “fight the Fed” and dismisses their hawkishness as a bluff, let’s uncover the truth behind these economic indicators and the likelihood of a FED induced recession.

While we have been exposed to the bullish arguments, such as the growth of Artificial Intelligence (AI) and improving Q2 earnings forecasts, it is essential to acknowledge the potential challenges ahead. At best, the United States could face a “Growth Recession” by Q1 2024. Furthermore, monetary policy tends to lag behind the Federal Reserve’s rapid campaign, and concerns arise from indicators like the inverted yield curve and worries about consumer resilience.

Before questioning consumer sentiments, let’s examine the June 27th Durable Goods Orders report. While there was excitement over the 1.7% rise in goods orders in May, Over the past year, there has been a 5.4% increase in orders for durable goods, but orders excluding transportation have seen a 0.3% decline. However, taking into account the 5.2% rise in producer prices for capital equipment during the same period, it becomes apparent that headline orders have remained almost unchanged when adjusted for inflation. It is crucial to focus on the core shipments, which reveal a fifth consecutive quarterly deceleration in growth pace. This indicates the weakest quarter since the COVID shutdown restricted the second quarter’s performance.

Now, turning our attention to GDP, it is noteworthy that people have become excessively enthusiastic about a 2% real GDP print. However, economic data can often be heavily influenced by political factors. It’s important to remember that real GDP has only increased by 1.8% compared to a year ago, while jobs have seen a growth of 2.7%. This decline in productivity raises concerns.

Lastly, let’s consider the jobless claims and their potential to signal a recession. While the market celebrated a recent decline in initial claims, it’s essential to note that Juneteenth wasn’t recognized as a national holiday until 2021. Seasonal adjustments may not have accounted for this yet, and last week’s drop is not a reliable indicator of anything substantial, except for the fact that it was a week shortened by the holiday.

By examining these critical factors and indicators, we can shed light on the economic realities that challenge the prevailing bullish narratives.