TheBRRR’s Thoughts

GM!

The market ripped higher on Tuesday in reaction to encouraging inflation data. Just look at the breadth in the heatmap below - nearly every stock in the S&P 500 rallied.

While bears criticized this year’s rally as too concentrated in big tech, a breakout day like yesterday forces them to reevaluate. That includes Michael Burry, who revealed he recently closed his big short bets at a loss.

The y/y CPI number landing at 3.2% all but eliminated the chance of the Fed raising interest rates any further. The markets are now pricing in a 64% chance of a Fed cut on May 1st or sooner, with a 0.1% chance of rates being higher than they are today.

While the Fed and Congress’ failure to control inflation over the last 3 years has permanently damaged households and dollar buying power, the rate at which inflation is stealing from us has slowed enough for the Fed to reverse course.

The parameters are in place for the Fed to ease monetary policy to placate reckless spending and boost asset prices - their true purpose and objective.

Money Printer Go BRRR: Dollar down, risk assets up.

Editor’s Note: We’ve released V1 of our technical analysis chatbot! Premium subscribers can see the link in the premium section at the bottom of the email. I released a preview of what it can do in this post, where I ask it to analyze the daily and hourly bitcoin charts.

Macro News

Fed's Rate Hike Journey Nearing End?

What's New:

Significant Slowdown in Inflation: The October consumer price index (CPI) showed no month-over-month increase, and the year-over-year rise slowed to 3.2%, a significant drop from September's 3.7% and well below the peak of around 6.3% in January. This marks the fastest one-year “peacetime” decline in inflation in over 40 years.

Market Expectations Shift: Futures contracts now reflect only about a 5% chance of the Federal Reserve raising its policy rate above the current range of 5.25% to 5.50%, a sharp decrease from the 28% probability before the report. Traders increasingly anticipate a rate cut by May.

Core Inflation Eases: Core inflation, which excludes food and energy, rose 4% from a year earlier, marking the slowest pace in over two years, though still above the Fed's 2% target. This trend is critical in assessing the overall inflationary environment.

Why It Matters:

Potential Change in Fed Policy: The cooling inflation rate may lead the Federal Reserve to pause or reverse its interest rate hikes, a significant shift from its recent aggressive monetary tightening stance.

Economic Outlook Stability: The slowdown in both overall and core inflation suggests a stabilizing economic environment, potentially easing concerns about runaway inflation and its impact on the economy.

Balanced Fed Approach: Despite the positive signs, the Federal Reserve, led by Chair Jerome Powell, remains cautious. While the Fed is responsive to improving data, it is also prepared to act against any unexpected inflationary pressures.

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Market News

Market Rises on Economic Hopes, Inflation Data

What's New:

Wall Street Rally Continues: Futures and global stocks are surging, with the S&P 500 up 2.5% this week, reaching a new 2-month high. The index had its biggest advance since April, buoyed by legislative progress and positive inflation data.

Retail Sector Gains: In premarket trading, major retailers report strong performances. Target's shares climb up to 15% following better-than-expected earnings, with Walmart, Dollar Tree, and others also showing gains.

Broad Gains: The Russell 2000, an index that weights more heavily towards small-cap stocks, surged over 5% on Tuesday. The index sits merely 3.6% higher than it did on January 1, indicating how badly it has lagged the indexes that weight large-cap and big tech more heavily, like the Nasdaq (+36% ytd).

Why It Matters:

Market Sentiment Indicator: The rally on Wall Street, especially in the S&P 500, reflects growing investor confidence in the economy and corporate earnings potential.

Retail Health as Economic Barometer: The strength in the retail sector, particularly in premarket trading, suggests consumer resilience and could impact economic forecasts.

Corporate Performance Variances: The contrasting fortunes among different companies and sectors provide insights into the uneven economic recovery and sector-specific challenges.

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Today’s Reader Poll

We want to know about your usage of GPT models in general (if any):

Monday’s poll asked for your use-cases for GPT models. Interesting to see so many “Other” uses out there:

AI Art of the Day

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The BRRR is meant for informational purposes only. It is not investment advice. Please consult with your investment, tax, or legal advisor before making any investment decisions.