[Charts] Inflation and President Joe "Isuzu" Biden

Lou Basenese

Friday, May 13, 2022

The Wall Street Journal editors sounded downright giddy in today’s pre-market newsletter because tech futures were rallying after a “brutal trading week.”

Not to put a damper on their enthusiasm, but it’s been way more than a week.

In fact, as you’ll see in the chart below, we’re on track for the sixth consecutive week of losses for both the S&P 500 and the Nasdaq.

When will the markets bottom?

I know that’s the question on everyone’s mind. So I’ll address it in today’s issue…

First with a video from my recent appearance on Fox Business, and then with a key chart that shows we’re long overdue for (at least) a relief rally.

It’s All About Inflation, Stupid!

Forget about the economy right now. The markets are in a volatile and nasty downturn because of one thing: inflation!

It’s been running red hot, which forces the Fed’s hand to keep raising rates.

Mind you, it’s not necessarily the level of interest rates that’s freaking investors out, but the rate of the hikes. It’s a lot, all at once. The most in decades, in fact.

But let me be clear: it’s necessary, and it won’t stop until inflation cools down.

With that in mind, although this week’s major inflation data readings (CPI and PPI) showed a slight downtick, we need to see a trend over consecutive readings to confirm inflation has indeed peaked.

Until then, buckle up!

No matter how many press conferences President Joe “Isuzu” Biden holds — telling us to “Trust me! My policies are helping reign in inflation” — stocks promise to continue selling off.

The good news? Yes, there’s always a silver lining. Check out the video below, and then the chart, to see it for yourself.

(click image to watch video)

Closer to a Bottom

As you heard in the video, we still need that last leg down — a major flush of capitulation — before I’m convinced a bottom is in for the major market indexes.

But as you can see, if we look at subsectors of the market, we’ve already endured such a sell-off in small-caps, micro-caps, and (especially) biotech.

(click image to enlarge)

Truth be told, if we look at the downturns from the peak, biotech is off about 65% already. That’s one of the worst drawdowns in history. Period.

I’d contend it’s the most oversold sector, and therefore, the one most likely to rebound the fastest and highest, once the markets find bottom.

Getting back to that bottom — and the punishment of what seems like endless selling — it’s actually well-founded:

As you can see below, we’ve only experienced six or more consecutive weeks of market losses a handful of times in the history of the markets.

(click image to enlarge)

Or as Bespoke Investment Group notes, “While there have been a number of streaks that have been as long, just five have been longer, and only one (1973) lasted longer than seven weeks.”

At the very least, we’re overdue for a relief rally.

While that might not get us back to even yet, it’ll be a nice psychological respite, if nothing else.

Bringing it back full circle, here’s to The Wall Street Journal’s optimism over today’s tech bounce representing the start of the rebound!

Ahead of the tape,

Tags: inflation stock-market