🐂 Will Reinflaton Kill The Bull Market?

What’s on the Menu 🍴

The debates are heating up again: inflation, wage hikes, and bull vs. bear markets!

Today we’re weighing some odds, pros and cons, and ways to plan for the future.

Let’s dig in!

  • Will Reinflation Kill The Bull Market? 🐂

  • The Wage Dilemma: Robots or Raises? 🤖

  • Investing At All-Time-Highs May Not Be Such A Bad Idea 👀

  • Video Of The Day: Is A Huge Crash Incoming? 📺

Today’s newsletter is a 4 minute read.

Will Reinflation Kill The Bull Market? 🐂

Can you guess what asset is hitting year-to-date highs in the chart below?

It’s not NVDA, gold, or crypto…it’s the yield on 10-year US government bonds!

And this might just be a problem for risk assets if it stays on the current course…

The 10-year yield is a very important rate benchmark in the bond market.

It is often used as a starting base rate for corporate bonds and mortgage rates.

So a higher 10-year yield can directly translate to higher borrowing costs in the economy.

In the past two years, rapid rises in the 10-year yield led to stock market corrections:

What’s driving the recent rise in bond yields?

Most likely, it’s due to a combination of the following:

  • Stronger economy

  • Higher energy prices

  • Rising inflation expectations

Crude oil is up 18% year-to-date and US gasoline prices are up almost 30% year-to-date.

We also saw higher ISM Manufacturing readings in both the US and China this week, suggesting the global economy continues to improve despite rising energy prices.

Higher stock & crypto prices have also bolstered wealth for consumers.

But now all of this is starting to tip the scales back to a more inflationary environment, threatening the narrative of rate cuts.

We’ve even seen “1970’s reflation” comparisons getting mentioned in financial media again…

We don’t think that comparison is quite right.

But a market correction just might be the balancing mechanism that is needed to keep the economic “soft landing” intact.

The playbook of “fading the extremes” when it comes to investor sentiment continues to work in our view.

When sentiment gets to an “Extreme Greed” reading it’s often been a good time to reduce risk.

And if we get a deep correction and sentiment turns ultra bearish again, that could prove a great buying opportunity.

Rising yields and energy prices are certainly a concern now, but we aren’t panicking.

Corrections can be healthy, and don’t have to mean an end to a strong economy and bull market!

The Wage Dilemma: Robots or Raises? 🤖

California’s latest wage maneuver has set the fast-food arena ablaze, introducing a $20 hourly minimum wage for those flipping burgers and stirring fries.

But as quickly as wages soared, menu prices followed suit, a vivid illustration of the wage-price inflation spiral.

In a world already grappling with inflationary pressures, this move has reignited the age-old debate: Should we elevate living standards through higher wages, or does this risk job opportunities and business viability, especially for the smaller players?

The Mechanization March

Major fast-food chains aren't just absorbing the cost hike; they're innovating their way out, with McDonald's and Chick-fil-A at the forefront of a robotic revolution.

The trial of fully-automated restaurants suggests a future where machines outpace man, begging the question:

“Is a higher wage worth it if the jobs it's meant to improve evaporate in the process?”

The Economic Tightrope

This wage hike ventures into the complex tussle between bolstering living standards and preserving employment opportunities, especially for entry-level positions.

It's a delicate balance, with the shadow of automation looming large. The trend towards mechanization seems inevitable, challenging the very fabric of job creation in industries reliant on manual labor.

Navigating the Inflation Squeeze

With inflation already tightening its grip on household budgets, the question remains:

“Can consumers shoulder the burden of rising costs, even if it means better wages for workers?”

It's an issue that touches on economic principles, societal values, and the relentless march of technology.

No matter where you stand on the issue, it seems like high school entry level jobs are among the first to get handed over to the robots.

The only question is: do mandatory wage hikes incentivize speeding up the automation process?

Investing At All-Time-Highs
May Not Be Such A Bad Idea 👀

Stocks being at all-time-highs tends to push investors away from wanting to invest.

In fact, many people may go to cash when all-time-highs hit for fear of a big sell-off.

However, the data shows us that maybe investing at all-time-highs in stocks isn’t such a bad thing.

JP Morgan put out it’s “Guide To The Markets”, and this slide really stood out.

On the left, it shows how often the S&P 500 has made all-time-highs.

It’s only 6.6% of the time going back to the 1950’s.

However, the percentage of those all-time-highs that basically lead to the market not returning to that level again, is 29.9%. This is represented by the all-time-highs with the green dots.

Roughly 30% of the time, if you’re seeing an all-time-high in the S&P 500, you’re not going to see that price again.

Pullbacks from these all-time-highs represented by the green dots, never see more than a 5% correction from that high.

This has me thinking about our current S&P 500 price action.

According to this data, there’s a roughly 30% chance that if we see a correction from the most recent all-time-high, it won’t be more than 5%.

A 5% correction would land us around the $5,000 price level in the S&P 500.

Hardly a blip of a selloff in the grand scheme of things.

Of course, there’s still a healthy percentage chance that the recent new all-time-high leads us to a deeper than 5% correction, BUT, the fundamentals of the market may just put a floor here for a shallow correction.

Said another way, we may have a pretty buyable dip on our hands.

After all, the market prices on earnings. Earnings for 2024 and 2025 are consecutively expected to grow at a healthy rate.

So, investors looking forward into the future, may just see a deal in their eyes on any selloff to come in the index.

Video Of The Day:
Is A Huge Crash Incoming? 📺

After 7 straight green months for bitcoin…

And a new all-time high for stocks…

Markets are starting to pull back.

The big question is - “Will we see a massive crash or a small dip for buying?”

In today’s We Talk Money, we’re giving our opinions on that and more!

You’ll also learn:

  • Why are interest rates and oil prices climbing?

  • What is bitcoin price most likely to do in April?

  • How can investors find value in stocks this month?

  • And much more!

Food For Thought 🧠

"It is not the employer who pays the wages. Employers only handle the money.
It is the customer who pays the wages.”
- Henry Ford

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DISCLAIMER: We are not investment advisors, and this content is for educational purposes only. We don’t offer financial, legal, or tax advice. Nothing we say is a recommendation to buy or sell any assets. Trading and investing are extremely risky, so please be careful and do your own research.