The bull rally is back on! This week we got good news on inflation which eased interest rate pressures. SPX reacted strongly, bouncing off a key level that we highlighted previously. Todayâs post explains what happened and our price targets for the rest of the year. This is a rally you donât want to miss!
Plus: How we used Wave Theory to predict the end of the SPX selloff. We suggested to hold onto your stocks and that the selloff would be shallow â that is playing out now. Lastly, we give 8 market predictions for Trumpâs inauguration next week!
Inflation fever broke
For the past few weeks, markets have been terrified of inflation. People were worried about Trumpâs upcoming fiscal policies, tariffs, and deportation and what they might do to the supply side of the economy. Bonds sold off heavily and the US 10-year yield spiked as high as 4.8%. Many experts thought it might even go to 5% or 5.5%.
All that came to a head this week. Firstly, Producer Price Index (PPI) and Consumer Price Index (CPI) prints for December came in cooler than expected. As we highlighted in our 2025 Outlook, and further confirmed by Fed President Mary Daly, inflation is still trending downward due to stabilizing shelter and services categories.
By the way: the shelter inflation measure, which accounts for more than a third of the CPI basket, is flawed and lags current market trends. Better is to use the Zillow rents index, which results in core inflation below 3%. Over time, the official figures should converge down to this adjusted measure, meaning built-in disinflation is coming.
We then got news that tariffs would be implemented at a gradual pace, in order to avoid a spike in inflation. The pace would be 2-5% increases per month. This vision aligns with public comments previously made by Trumpâs advisers and should not have been a surprise to anyone. Stephen Miran, the one to lead the Council of Economic Advisers, reminded us that the 2018 tariffs on Chinese imports were phased in over 12 months.
Always remember that Trump is a populist president. He will give people what they want â disinflation and jobs. Regardless if itâs good for the economy, global trade, or financial markets, it is the will of the people of USA. And that will be the guiding star for policy for the next four years. Once we came to this realization, it made Trumpâs actions much easier to predict!
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Political clouds are lifting from the economy
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8 market predictions for Trumpâs inauguration
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