Wealth Watch:Market Appears Oversold as Economists Suggest US Inflation Could be Peaking Soon

Wealth Watch:Market Appears Oversold as Economists Suggest US Inflation Could be Peaking Soon

April 19, 2022

From the desk of Vance Howard:

We have moved back from being overbought to being oversold. One of the main reasons for the selling pressure these last two weeks is that it’s tax time. We have had three years of nice gains in the S&P 500 and many investors are now paying capital gains on profits they may have taken. Thus, the tax bite is higher. And the pain is wider spread because household ownership of equities is greater, and the share of total wealth is higher as well. We do expect the selling pressure to diminish later this week.

We are now hitting on a Fibonacci range with a point of support around the 38% level as the market has pulled bac. We will be waiting to see if this area holds.

Some good news from JPMorgan Economists shows that “persistent categories of inflation” could be peaking:

  • least persistent CPI contributors likely already peaked (autos, etc.)
  • high persistence contributors like shelter are “firming” while likely peaking in aggregate
  • overall, inflation, if this is correct, should also be peaking soon

This is quite interesting, because if their models are directionally correct, inflation will be peaking in aggregate in the US soon.

Bonds are down and look to be headed lower as rates are rising again. The 20-year treasury bonds are down about -16% YTD. This could be a positive for equites as investors see no upside to bonds this year.

Vance Howard

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