The Market Shrugs at Today's Inflation Report

Today's inflation report... The bull run continues... Rising expectations for another rate cut... A major signal of 'risk on' sentiment... A key ratio to watch... Bitcoin is screaming higher... Why this could be the 'biggest crypto bull market in history'...

The postelection run continues for now...

Following a down day across the board yesterday, the major U.S. stock indexes were "mixed" today, but still traded toward near all-time highs once again, with the benchmark S&P 500 and Dow Jones Industrial Average closing up slightly.

The tech-heavy Nasdaq Composite Index and small-cap Russell 2000 Index were a little lower, but postelection bullish sentiment in the market has not worn off in any meaningful way. And today, an inflation report "in line with Wall Street expectations" was one of the catalysts for a continued good mood.

This morning's release of the October consumer price index ("CPI") showed that prices rose 0.2% month over month and 2.6% year over year. And "core" inflation – excluding food and energy – rose 0.3% for the month and 3.3% year over year.

Those latter numbers are concerning to me (Corey McLaughlin) should they continue. This trend means that the Federal Reserve could eventually shift its policy stance from easing to... something else. But Mr. Market doesn't appear to care about that yet.

This inflation report was largely received positively by investors today. They seem to see it either as a sign of the status quo or a continued belief that the inflation read isn't high enough to lead to marked moves in policy (or the economy).

After today's report, federal-funds-futures traders put 80% odds on another 25-basis-point rate cut coming at the Fed's December meeting... up from barely more than a coin flip a day ago.

More economic "juice," they expect.

A sign of this bull run's strength...

It's hard to deny that the election results in the U.S. have been a catalyst for the market. Our colleague and DailyWealth Trader editor Chris Igou touched on why it has led to this recent run-up in stocks in his daily issue to subscribers today...

A flurry of changes lit up the markets this month...

Gold is plunging after its massive run to the upside. The U.S. dollar is spiking. Stocks gapped up to all-time highs. And crypto is soaring.

Some of this activity is because we've reached a decision in the U.S. election. After all, markets hate uncertainty...

But the result was unexpected, too.

Few forecasters had Donald Trump winning the popular vote. Fewer still expected a Republican trifecta of the Senate, House, and presidency.

As of today, Republicans are close to securing a majority in the House, in addition to the Senate and having Donald Trump in the White House. Approximately 12 to 17 races are still uncalled, depending on the source, but Republicans need just two more seats for a majority. This afternoon, some outlets projected Republicans will indeed take the House.

That's the political narrative in play right now. But as Chris noted today, absent any storylines, this bull run's strength is showing based on a tried-and-true indicator that he uses to "see whether the market favors risk or safety... and in what proportion."

It has to do with a signal of 'risk on' or 'risk off' behavior among investors...

As Chris wrote to his subscribers today...

To measure this signal, we're using two exchange-traded funds. First is the Invesco S&P 500 Equal Weight Consumer Discretionary Fund (RSPD). And second is the Invesco S&P 500 Equal Weight Consumer Staples Fund (RSPS).

Both of these funds carry a weighted basket of consumer stocks. RSPD holds "discretionary" companies that make nice but inessential products. Hotels, fast food, and fashion are all examples of discretionary products.

On the other hand, RSPS contains "staples" companies that make items we use every day. These are things like home goods, cleaning supplies, and groceries.

In short, discretionary companies make "wants" while staples companies make "needs."

And for investors, discretionary companies mean profit where staples companies mean safety.

When the staples fund outperforms, it means that investors are getting cautious – and a flight from risk could be in the works.

But when the discretionary fund outperforms, it means that investors are more risk tolerant. They want companies with growth potential, not stodgy blue chips.

The ratio between these two funds can show the market's attitude toward risk at any given time. The higher the ratio, the more comfortable the market is with risk. And today, Chris showed the ratio is breaking out to new highs in favor of discretionary stocks...

This is the highest this ratio has been in nearly two decades and is a major signal of a "risk-on rally" that Chris says you should expect to "intensify." As he concluded...

We'll continue to observe this ratio as the bull market unfolds. When it starts to revert, it means folks are growing more cautious... And when that time comes, we'll want to get defensive with our trading strategy.

But until then, you'll want to be bullish. Mr. Market wants to own risk... and we're not going to argue with him.

Today, consumer discretionary stocks were up another 0.9% while staples were up 0.3%.

Meanwhile, bitcoin continues to scream higher...

It looks like the "risk on" nature of the world's most popular cryptocurrency is in full flight right now. Bitcoin traded as high as $93,000 today, though sold off in the afternoon to a little below $90,000. In any case, the prospect of a crypto-favorable White House is surely having an influence...

You can hear more about that idea – how Trump endorsed a federal program that's about to kick off the "biggest crypto bull market in history" – in this new, free presentation from our Crypto Capital editor Eric Wade.

Given that bitcoin is already shattering its all-time highs almost every day right now, Eric also shares in the presentation how you can access his research on six lesser-known cryptos that he says have 1,000% upside moving ahead...

Existing Crypto Capital subscribers and Stansberry Alliance members can find all of Eric's research and portfolio recommendations here, including his most recent video update, headlined "The Election Rally Is Just Getting Started." As Eric says...

We don't typically get involved in politics in Crypto Capital, but Trump has publicly declared support for cryptocurrencies and blockchain technology. So it's impossible to ignore the effect Trump's victory has had on the cryptocurrency market. Bitcoin (BTC) surged to a new all-time high on the news, and many cryptos in our model portfolio rose 10% or even more.

Investors are clearly optimistic about an administration that may implement favorable crypto regulations and policies. As we mentioned following the Nashville Bitcoin 2024 conference in July, Robert F. Kennedy Jr. – who campaigned with Trump and may join his administration – wants America to own a significant number of bitcoin.

Eric said he's also waiting to see whether certain cryptos – including one Crypto Capital model portfolio holding – will still be the target of the U.S. Securities and Exchange Commission once the more crypto-friendly administration takes over.

He walked subscribers through potential future regulations and whether they'll be good for investors. And, as always, he shared some longer-term sage advice for investing in cryptos or any asset, really...

We'll take a look at the overall crypto market and review tailwinds that could push crypto prices even higher. But as we'll explain, that doesn't mean there aren't still headwinds and potential volatility ahead.

So we'll share how owning the right mix of cryptos can help you survive any volatility as "stupid money" moves play out in the markets over the coming year.

Existing subscribers can check out Eric's latest video update here... And if you don't subscribe to Crypto Capital and would like to get started, be sure to check out Eric's new free presentation. You'll hear his details about why the election could jump-start the biggest crypto bull market ever, along with information about how to get started with a subscription.

And stay tuned here... We'll be keeping tabs on bitcoin and other developments in the cryptocurrency world in the Digest... as well as this "risk on" behavior that appears to have more room to run.

New 52-week highs (as of 11/12/24): Automatic Data Processing (ADP), American Financial (AFG), BWX Technologies (BWXT), Cisco Systems (CSCO), CyberArk Software (CYBR), Electronic Arts (EA), Honeywell International (HON), Intuitive Surgical (ISRG), Oracle (ORCL), Spotify Technology (SPOT), Stryker (SYK), Toast (TOST), Texas Pacific Land (TPL), Twilio (TWLO), Invesco DB U.S. Dollar Index Bullish Fund (UUP), Zoom Video Communications (ZM), and the short position in SolarEdge Technologies (SEDG).

In today's mailbag, feedback on yesterday's edition about nuclear power... Do you have a comment or question? As always, e-mail us at [email protected].

"Has anyone addressed the problem of disposing nuclear waste? When I worked for Westinghouse, it was a major issue, but no one had a solution." – Subscriber Jim A.

"While I cannot count how many times I have heard the now commonplace environmental refrain that nuclear energy is a zero carbon emitter as well as one of the most efficient forms of producing energy compared to fossil fuels, I have yet to hear anything substantive from either side of the political aisle or from Wall Street analysts regarding what to do with the nuclear waste that is the result of such efforts.

"Let us not forget that what you have left – the spent fuel rods – is still the deadliest substance on our planet bar none and will remain that way long after all of us are gone. With uncounted tons of this waste material spread across our country in 'temporary' storage we want to create more thus providing additional fuel for a potential environmental disaster due to terrorism or accident. I welcome a bipartisan initiative to seriously address this.

"Regarding a plant that would power AI, I recall uttering a sigh of relief when the nuclear power plant Indian Point in New York was finally shut down. When it was still in operation, I remember driving by the town the plant called home and noticing what an almost lifeless blight I had entered – no one who was a homeowner could sell their home since no one wanted to live there. I truly empathized for those residents.

"If a fossil fuel plant goes up in smoke the environment takes a short-term hit, not a generational catastrophe – just ask the people that lived anywhere near Fukushima who will never be able to live there again. Brett and Whitney may be bullish on nuclear energy but until the nuclear reactors have become idiot proof and the means of safe disposal of the waste has become part of the equation, count me out!" – Subscriber Joe M.

All the best,

Corey McLaughlin
Baltimore, Maryland
November 13, 2024

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