This is a headwind for equities that has started to pop up over the past
couple of weeks. Yet, it has taken years to ferment and likely will persist
for the foreseeable future. The headwind I am talking about is inflation.
Inflationary pressures -whether real or perceived - will likely remain high,
and this can be seen in our inflation indicator that looks at the trends in
crude oil, gold, and yields on the 10 year Treasury. See figure 1, a weekly
chart of the S&P500 with our inflation indicator in the lower panel. With
strength this past week in crude oil, gold, and yields, the indicator is back
in the extreme "high inflation" zone.
Figure 1. SP500 v. Inflationary Pressures
As discussed in the article "More
Headwinds To Worry About", inflationary pressures are a significant
headwind for equities even in the bull market of the 1980's and 1990's. This
should be clear from the study presented in that article. When the trends
in crude oil, gold, and yields on the 10 year Treasury are strong and rising,
equities tend to under perform.
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of The Technical Take blog. His commentary on the financial markets
is based upon information thought to be reliable and is not meant as investment
advice. Under no circumstances does the information in his columns represent
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all positions are fully disclosed at http://thetechnicaltakedotcom.blogspot.com/.
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