Wouldn't it be great if a simple number told you whether it was safe to bet on the market going higher?
Crossing Wall Street posted a chart that suggests the stock market does very well when the monthly inflation rate is under an annualized rate of 5.3%. Conversely, the market has done poorly in months when inflation is above that 5.3% annualized level. The chart shows the the monthly return above and below that level of inflation.
The data goes back to 1871; and it is surprising how well this relationship has held up over 140 years. During this period, monthly inflation has been above the 5.3% annualized level about one-third of the time.
Historically, when inflation was below 5.3%, the stock market has had an annualized after-inflation gain of 9.59%. And when inflation was above 5.3%, then the stock market has had an annualized loss of 8.15%.
Did Inflation Cause Returns to Change?
Computers are great at finding the optimal point for a system to trade based on historical data. Technical traders call this "curve-fitting", and have learned to be wary of coincident variables being confused as causal variables. That is a fancy way of saying that the relationship between inflation levels and stock market returns might be a great way to "describe" what happened; however, it doesn't prove that the inflation level "caused" the returns to go up or down. It also doesn't prove that inflation didn't cause the returns.
Nonetheless, 140 years is a long time sample … and inflation rates affect people reasonably uniformly … and the stock market can be looked at as collective measure of the fear and greed of the population. So, using the inflation rate as a trading filter seems to be a reasonable idea worthy of further testing. What do you think?
With many market watchers expecting the inflation rate to rise, this is something to consider.
Wouldn't it be great if a simple number told you whether it was safe to bet on the market going higher?
Crossing Wall Street posted a chart that suggests the stock market does very well when the monthly inflation rate is under an annualized rate of 5.3%. Conversely, the market has done poorly in months when inflation is above that 5.3% annualized level. The chart shows the the monthly return above and below that level of inflation.
The data goes back to 1871; and it is surprising how well this relationship has held up over 140 years. During this period, monthly inflation has been above the 5.3% annualized level about one-third of the time.
Historically, when inflation was below 5.3%, the stock market has had an annualized after-inflation gain of 9.59%. And when inflation was above 5.3%, then the stock market has had an annualized loss of 8.15%.
Did Inflation Cause Returns to Change?
Computers are great at finding the optimal point for a system to trade based on historical data. Technical traders call this "curve-fitting", and have learned to be wary of coincident variables being confused as causal variables. That is a fancy way of saying that the relationship between inflation levels and stock market returns might be a great way to "describe" what happened; however, it doesn't prove that the inflation level "caused" the returns to go up or down. It also doesn't prove that inflation didn't cause the returns.
Nonetheless, 140 years is a long time sample … and inflation rates affect people reasonably uniformly … and the stock market can be looked at as collective measure of the fear and greed of the population. So, using the inflation rate as a trading filter seems to be a reasonable idea worthy of further testing. What do you think?
With many market watchers expecting the inflation rate to rise, this is something to consider.
If you could only accomplish one goal, yet it would only take 24-hours to achieve, which goal would have the greatest positive impact on your life?
What a great question! After you answer it, set a deadline to accomplish that goal … and (here's the important part) do something to work on it, or take you towards it, every day.
If you could only accomplish one goal, yet it would only take 24-hours to achieve, which goal would have the greatest positive impact on your life?
What a great question! After you answer it, set a deadline to accomplish that goal … and (here's the important part) do something to work on it, or take you towards it, every day.
They started showing up at the gym I go to … then someone in the office wore them when we worked-out together. Part of me thought it was "pretentious", and another part thought it was "silly"; turns out … they are worth trying.
Here's a confession; I'm now of an age where it made sense to judge a workout by how much my feet and ankles swell. The well-cushioned athletic shoes that I have been wearing, do such a good job of masking impact that I wasn't noticing how my running form was hurting my body. Instead, I just thought the damage was simply a result of getting older.
Apparently, I just forgot how to run. A few weeks in those silly looking barefoot running shoes has made a huge difference.
Studies show that barefoot running prevents injury, and can even enhance performance! A professor at Harvard led a research team that looked at the "impact collision force" (when the foot hits the ground) of runners in shoes compared to barefoot runners. The impact was actually reduced by two-thirds by running in bare feet. Basically the difference is in how the foot lands on the ground. Barefoot runners land each step more on the ball, or the middle of the foot, which is more gentle to the foot.
In contrast, runners in traditional athletic shoes tend to land more on the heel. As a result, our thickly-cushioned modern running shoes may actually be causing stress on our joints and feet because we're not landing the way we were meant to do while running.
If you decide to try out this age-old running style, it's best to gradually transition yourself for a few weeks. Listen to the signals from your body. Otherwise, you may feel sore while you get "back on your feet" – and start using muscles you probably forgot you had.
They started showing up at the gym I go to … then someone in the office wore them when we worked-out together. Part of me thought it was "pretentious", and another part thought it was "silly"; turns out … they are worth trying.
Here's a confession; I'm now of an age where it made sense to judge a workout by how much my feet and ankles swell. The well-cushioned athletic shoes that I have been wearing, do such a good job of masking impact that I wasn't noticing how my running form was hurting my body. Instead, I just thought the damage was simply a result of getting older.
Apparently, I just forgot how to run. A few weeks in those silly looking barefoot running shoes has made a huge difference.
Studies show that barefoot running prevents injury, and can even enhance performance! A professor at Harvard led a research team that looked at the "impact collision force" (when the foot hits the ground) of runners in shoes compared to barefoot runners. The impact was actually reduced by two-thirds by running in bare feet. Basically the difference is in how the foot lands on the ground. Barefoot runners land each step more on the ball, or the middle of the foot, which is more gentle to the foot.
In contrast, runners in traditional athletic shoes tend to land more on the heel. As a result, our thickly-cushioned modern running shoes may actually be causing stress on our joints and feet because we're not landing the way we were meant to do while running.
If you decide to try out this age-old running style, it's best to gradually transition yourself for a few weeks. Listen to the signals from your body. Otherwise, you may feel sore while you get "back on your feet" – and start using muscles you probably forgot you had.
This playful dog doesn't understand why the statue won't throw the stick, but it keeps trying. It reminds me of the games the market is playing to entice someone to play.
The Markets Are Testing New Highs.
While the S&P 500 is still below its high from October 2007, that NASDAQ Composite flirted inches from its highest close since December 12, 2000.
So, Are You Bullish?
We hear a lot about how investors are overly optimistic … but a look at the latest numbers from AAII shows that bullish sentiment has dropped to under 31%. Again, we are near highs. That isn't overly bullish; frankly, it seems a little strange.
Normally, I would take the lack of bullishness as a contrarian indicator (meaning crowds are often wrong at turning points … so the lack of bulls would indicate a push higher was likely). However, I'm starting to think that there is little "real" investor capital at risk in the U.S. Equity markets right now.
When the real money wants to play, I'm not sure it will like the game.
