Article Category: Inflation

Ramblings and Musings

As Dow Theory Letters has evolved over the last couple of years, we've transitioned toward more subject-focused articles, rather than the "stream of consciousness" style writing that Richard often preferred (older subscribers may recall that our articles never even used to have titles!).

With multiple writers on board, this approach makes sense, but sometimes I miss the ability to muse and ramble about disparate topics, so I'm going to do that today.

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Posted in: Dow Theory Economy Federal Reserve Inflation Interest Rates

LEIs and Price Action Agree

Last month's meltdown in the stock market began in earnest on February 2nd, the day that the January jobs report was released. The culprit, at least for the initial bout of selling, was an acceleration in wage growth - the initial estimate of average hourly earnings reached 2.9%, the strongest year-over-year gain since 2009.

This report, which came on the heels of two months of rising long-term interest rates (the 10-year climbed from around 2.36% to 2.85%) caused the market to panic. Investors immediately began to worry about rising inflation, which would then trigger a more hawkish Fed, and consequently more downward pressure on the economy than previously anticipated.

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Posted in: Corrections Federal Reserve Inflation Market Breadth Volatility

Seasonal Pattern in Treasuries?

Most investors are familiar with the seasonal pattern in stocks, encapsulated by the old adage, "sell in May and go away." But is there a similar pattern on the fixed income side of the equation? That's what we're going to take a look at today.

Back in 2015, three researchers, Mark Kamstra, Lisa Kramer, and Maurice Levi, wrote a research paper titled, "Seasonal Variation in Treasury Returns." What they found is that the U.S. Treasury market exhibits an annual cycle in which average monthly returns vary over 80 basis points (%) from peak to trough.

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Posted in: Bonds Dollar Federal Reserve Inflation Interest Rates

Corrections are Healthy, Even This One

What's the difference between a correction and a bear market? This seems like a straightforward question, but if your answer has anything to do with percentage declines (as in, a correction is a drop greater than 10%, while a bear market is a decline greater than 20%), you're missing the point.

While those are the generally accepted thresholds that the financial media uses to define corrections and bear markets, I'd argue those definitions are completely arbitrary and serve little purpose other than general classification.

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Posted in: Corrections Federal Reserve Inflation Interest Rates Primary Trend

The Footrace Takes a Turn

After well over a year of smooth sailing, we finally hit an air pocket ... and you know what? It's about time. Markets that go straight up are unnerving, even if you're positioned correctly, and even if history suggests that more gains lay ahead.

We'll get to that last part in a moment, but first, let's talk about what's at the root of this selloff. The first thing we must acknowledge is that over the last two months, this market has been rising at an unsustainable pace.

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Posted in: Corrections Dollar Earnings Federal Reserve Inflation Interest Rates

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