The graph below, courtesy of Jeff Weniger, shows that since 1990, spikes in the University of Michigan (UM) consumer inflation expectation index to around 5% have preceded inflation declines. As he highlights, the UM inflation expectations gauge hit 4.9% in the latest survey.
The exceptions to the rule were in 2020 and 2021, which occurred during highly irregular and unpredictable events. Excluding 2020/2021, the other instances occurred when CPI was increasing, not falling as it is today.
Two factors account for the jump in the UM survey of inflation expectations. First is politics. Per the UM inflation expectations survey, Democrats think inflation will be 6.5%, while Republicans only believe it will be 0.1%. The political leanings of those surveyed certainly skew the aggregate inflation expectations. The second is tariffs.
Despite historical precedence during Trump’s first term and prior historical instances, tariffs are not necessarily inflationary. However, the media has been boosting fears that this round of tariffs will generate higher inflation. Last week, the Fed raised its 2025 inflation forecast by only 0.2%.
Furthermore, their estimate assumes the President will levy the full amount of tariffs being threatened, and countries will retaliate 100%. This is a worst-case the Fed’s thinking. Both factors lead us to believe consumers may be wrong once again.
Jeff comments on his UM inflation survey graph as follows: “The public is most worried about inflation at the moment the inflation rate is ready to tank.“
What To Watch Today
Earnings
Economy
Market Trading Update
As noted yesterday, the recent decline in the market likely marked a near-term low. To wit:
“The market tried to muster a rally this week, and we are beginning to see early signs of a bottom forming. As shown in the chart below, while bumpy, volatility has fallen below 20, relative strength has improved, and momentum is turning into a buy signal. Furthermore, money flows are also beginning to reverse, suggesting a near-term bottom may be in.”
Monday’s rally triggered confirmed buy signals on both money flows and momentum, suggesting that the recent bottom in the market is likely confirmed. The market is testing initial resistance at the 200-DMA, which coincides with the 20-DMA, but the market should be able to move above that in the next couple of days, barring any disruptive headlines from the White House.
While more bearish headlines certainly weighed on investor sentiment, as is usually the case, negative investor sentiment is typically a contrarian signal for investors. As noted, we have been buying beaten-up stocks with strong earnings prospects over the last two weeks and watching for the value-to-growth rotation that may have started.
We are early in this process, and there is no guarantee the recent bottom is “the” bottom, but for now, the evidence is starting to build that it was.
Besides the technical backdrop suggesting a rally from current levels, we are also entering the last week of the quarter, bringing institutional buyers into the market to rebalance portfolios. It is expected that pension funds are expected to be a large US equity buyer of $85 billion by the end of the quarter.
We must continue to manage risk exposures in our portfolio and balance risk and reward according to our tolerances. However, there is early evidence that we want to hold equity risk at current levels and let the more oversold market conditions work to our advantage.
Retirement Income Strategies
Planning for retirement is about more than just saving—it’s about ensuring a steady income stream that lasts throughout your retirement years. Without a well-structured plan, you could risk outliving your savings or facing financial hardship due to inflation, taxes, or unexpected expenses.
This guide will walk you through retirement income strategies to help you achieve sustainable retirement income while balancing withdrawals, taxes, and long-term financial security.
Staples Vs. Technology
The graphic below charts the daily SimpleVisor Absolute and Relative scores for the technology and staples sector over the last three weeks. As we share, technology was in the bottom left corner three weeks ago, denoting it’s oversold on both an absolute and relative basis.
Conversely, staples, were overbought using both assessments. As the market has found firmer ground, the scores of both sectors have been heading in opposite directions. Staples are now at fair value on a relative basis and slightly oversold on an absolute basis. Technology remains oversold using both models, but its scores are headed toward fair value.
As we discussed with growth and value last week, these sectors may also provide a clue as to how long this bounce may last. More importantly, they can tell us if the bounce is before we explore the lows again or a bounce back toward record highs and back into the bullish trend.
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