On the thin line again: inflation and recession fears

August 4, 2024 Update

Two weeks ago, I wrote, “Right now, the backdrop remains positive for stocks unless really bad economic data starts to show up.”

The market was spooked by last week’s unemployment data, which was seen as higher than expected, driving a strong sell-off in stocks.

See below how unemployment moved to 4.3% vs. 4.1% expected.

The FED is expected to start cutting rates next September. However, if they start “too late,” the stock market typically does not react well. The question is whether we’ll go through a recession soon and, if so, how severe it will be.

It has been interesting to observe how expectations have shifted from being very pessimistic (recession coming) to optimistic (inflation might run too hot) and back again to recession fears.

The Q3 GDP Nowcast sits at 2.11%, which is not recessionary at this point.

What needs to be pointed out is that the GDP Nowcast had a strong decline from 2.7% to 2.1%, a data point worth paying attention to.

Some good data points: The M2 money supply has started to grow again.

This is one of my favorite charts and reflects the normalization period we have been going through after the COVID-19 shock.

Additionally, inflation is pointing down as shown by the last Inflation Nowcast.

Finally, we can see inflation moving closer to the FED’s long-term goal of 2%.

Lastly, the 10-year Treasury yield moved sharply downward.

This is a positive backdrop for stocks unless we continue to see very bad economic data.

NASDAQ

The Nasdaq closed down 3.55% for the week, and its chart does not look good.

The equal-weight SPY500 looks better on the weekly chart:

We have witnessed a strong correction in Tech while the broader market has performed better. I don’t expect the market to correct too much further from here. Let’s see what happens next.

PORTFOLIOS

First, let’s take a look at my 7 picks for the 2024 Portfolio:

The portfolio is up almost 40% YTD, beating the SP500 by more than three times. ZETA has become the best stock in this group, outperforming NVDA at this point. Let’s see how it goes from here.

10X LARGE CAP MOMENTUM

I am left with ZETA only in my portfolio. I was stopped out from NU (-0.6%), PYCR (-7.8%), and RKLB (-13%). I have updated my stop loss for Zeta.

10X SMALL CAP MOMENTUM

Here, I was stopped out from TGTX (+18.8%) and AVPT (+12.8%). Now, I am left with CMPO only. My stop loss has been updated.

I am doing nothing this week. It’s time to be defensive and see if a bottom forms.

Note: In August, I’ll be traveling, so my posting will be very limited for the entire month.

That’s all for the week! Let’s see what the market brings us.

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Important: This is not investment advice. Consult a licensed financial advisor before making any investment decision.