Inflation May Have Peaked, Market Volatility Remains
In this article:
- Inflation data can get complicated
- The market looks beyond Fed actions
- What’s the plan for 60 days?
Is inflation past its peak?
Financial pundits and news headlines are screaming about inflation heralding recession. Inflation is at the highest it has been in 40 years.
But are the news hounds focusing too much on the rearview mirror and not enough on peering through the front windshield at what is approaching?
(Check out the free video, above, for insight into trading this changing market.)
Inflation may have peaked, volatility remains
Measuring inflation can get a little tricky and predicting how it plays out can be trickier than tricky.
In a nutshell, inflation tracks changes in prices of goods and services over certain time periods.
Inflation data can cover a specific item, such as ground beef, or a group of items, i.e. groceries. Time periods of price levels, like month-to-month, year-over-year, or first quarter to the previous first quarter, allow governments and economic entities to develop comparisons that indicate the overall health of the economy and how costs affect consumers.
Inflation data can get complicated, especially for traders reviewing historical and current data to anticipate how inflation will affect the stock market.
Current inflation data is based on a time delay (it looks back at prices over the last four to eight weeks). But the stock market is constantly looking six months down the road.
Many of the twists and turns of the market are already “baked into” future projections, even inflation.
Can day trading calm the chaos?
All the chaos of this market has created a new level of stress for traders.
One strategy to consider is day trading. While day trading is considered a higher level of risk, the team at Simpler Trading understands what traders go through when the market maintains an extended level of uncertainty.
Simpler Day Trading allows members to follow experienced traders as they “get in, get out” with trades that limit capital exposure. What is appealing to traders in this market is the community of professional traders delivering live-trading insights during market sessions.
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‘Sticky’ inflation likely here to stay
The tricky part of inflation lies in supply and demand for goods and services. This is complicated by Fed monetary actions that can affect prices.
Current market forces are colliding to produce the fastest fiscal tightening in history with the U.S. dollar, commodities, and interest rates all being scrambled at the same time. These combined factors are a rare occurrence in the market.
Unemployment is another fear when coupled with interest rates rising as companies wrangle with expenses. Layoffs in technology and cryptocurrency companies have already begun.
Inflation can calculate data while looking backward, but the market will assess what is happening now and what is likely to happen in six months.
One aspect of inflation that many people overlook is its “stickiness.”
Prices have risen sharply the past few months, yet people continue to buy goods and services. This may impact buying power and personal choices for necessities such as groceries, i.e. buying a little less, but for other consumer choices the dynamic is different.
As an example, take a look at hotel room purchases. Demand is high, prices have spiked higher, and even as inflation subsides overall (whenever that happens) these hotel prices will likely “stick” at higher levels and not drop back to pre-inflation pricing.
Inflation isn’t expected to drop anytime soon, but if inflation stabilizes then the Fed may look at it differently in a few months. (At this point the Fed raised the baseline interest rate to fight inflation.)
If inflation doesn’t keep rising, the Fed may abandon or reduce its planned aggressive actions, i.e. raise interest rates less than expected in the fall.
Flash forward 60 days from now, and the Fed will be reviewing inflation reports based on today’s data. If inflation appears in the future as less of a concern, how will this affect aggressive plans for rate hikes?
Will the Fed back off and let the market start breathing a sigh of relief? Or, will inflation keep rising so high that the Fed must take aggressive action?
Traders can get whiplash looking in the rearview mirror and then turning to look ahead.
While the news media keeps referring back to dated inflation data, the market is assessing all the future possibilities. This is why Simpler’s traders don’t default to inflation as “the signal” that guides their trading.
Traders can keep an eye on labor reports, interest rates, the U.S. dollar, and commodities (particularly copper) as performance indicators for future market movement. The Simpler Trading team delivers a daily dose of reviewing current market action.
As the market proved today, no matter what the reports are “right now” the path of least resistance in this market is trending lower.
Until inflation is clearly in the rearview mirror and the future looks positive, traders can look to alternative signals for what may lie ahead.
Taking the next step by trading with a pro
This stock market has presented some testy waters for retail traders, especially those looking for a way to trade with a professional.
Simpler Trading put together an online community like never before – a free trading room. This online training chatroom is designed to allow traders to experience the insight from a professional trader during live market hours.
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Back to basics in a bear market
Market action Tuesday surprised many traders as the day opened with positive movement before reversing further into bear territory.
The fluttering instability continued Wednesday as the market grappled with news from the Federal Reserve (Fed) and negative economic data.
The market was overall flat Wednesday as the Dow closed just above flat at 31,029.31 points to gain .27% (adding 82.32 points on the day). The Nasdaq just missed staying above water by slipping to 11,177.89 points for a .03% miss while the S&P 500 was barely under flat, losing .07% to 3,818.83 points.
All three major indexes – Dow, Nasdaq, S&P 500 – have entered bear territory (down by 20% or more).
How can traders pursue profitable opportunities while working through continued uncertainty?
Get back to basics.
A trading plan is the key to avoiding getting overly excited when the market is moving positively or getting overly frustrated when the market moves negatively.
A trading plan is a map showing the discipline and structure needed to stay focused as the market bounces around in a state of instability.
A defined trading plan is a working tool.
As a summer refresher, take a step back to review:
- Are you trying to trade too often and getting burned out mentally and burned in the trading account?
- Are you chasing moves and getting faked out by sudden shifts?
- Do you want to grow a small account or scale up a larger account?
- Trouble focusing on a select number of tickers while trying to manage a large watch list?
- Are you watching every tick in the price of a current trade setup, nervous about what happens next?
Simpler’s traders follow an established trading plan backed by training, strategies, and tools. When markets are flat like today with limited trading opportunities, the team digs into their personalized trading plans and evaluates whether they are in or out for current market conditions.
Scan for stocks during bear market
This wild market means price action moves quickly, and traders need an automated tool to track key stocks.
Stock scanners work within computer software to evaluate signals on a stock chart that follow specific targets set by the trader. Computers can track many companies around the clock and maintain a trading watchlist focused on a trader’s personalized setups and strategies.
This helps traders quickly disregard stocks they don’t want and concentrate on stocks with potential.
Learning to wait on the next trade
Simpler’s traders follow any conditions the market presents, and a summer refresher (like enjoying the three-day, holiday weekend ahead) offers time to reflect on past market performance, regroup, and rework goals within the trading plan.
This market has definitely moved into bear territory and such a shift requires adjustments on the part of traders.
Start by following a trading plan that doesn’t jump on news – good or bad – but instead waits to see what the market provides.
Decades of experience have shown Simpler’s traders that they don’t have to be involved in every move the market may present.