Update: Momentum Signal Shift

Momentum Number

Everyone is getting back into the pool. For the first time since the ETF signals flagged in early January, market momentum is squarely positive once again. That’s fitting – given that Cathie Wood dumped quite a number of stocks. It’s a signal that micro-cap and small-cap stocks are going to find support. 

It’s a sign that speculative capital is coming back into the market. It’s a sign that margin buyers and institutions are pushing back into the pool. It’s our BIG GREEN LIGHT that says that cash should be deployed into a vast number of opportunities…

I got the signal this morning – right around 10 am. Which begs a bigger question? What has changed in the last 24 hours – let alone the last few weeks? 

The Impact of Consumer Price Index (CPI)

I checked the headlines today – and investors are focused on one important number. The Consumer Price Index is slated for release on Thursday (tomorrow) morning. 

There is chatter coming out of JPMorgan that the CPI will come in much lower than the 7.3% anticipated by economists (year-over-year). The broad market consensus is that any figure lower than this will signal lower inflation and potentially reduce the Fed’s efforts on interest rates. 

Of course, CPI doesn’t actually measure inflation. It measures consumer behavior, and it’s a lagging indicator – which means that it doesn’t actually measure events on the ground. It also fails to take into consideration the buying behaviors of ALL Americans. And – remember one last thing – it’s a government number, meaning there are incentives to keep that number low.

The bet goes like this. If we are above 7.3% tomorrow, we’ll likely see a 50-basis point move by the Fed in March. If we’re under that number, the rate hike will likely be 25 basis points. If we SHOCK to the downside, we may see fewer rate hikes than previously expected. 

Hey, that’s all great news. So too is the speculation that the Russia/Ukraine situation may abate in the coming weeks, which will only help U.S. small-caps.  But somehow people are ignoring a much bigger headline. 

Changes in Mandates

A CNN headline rattled my brain on Wednesday after I heard that the network’s doctor said that the “science has changed” around COVID. That interview with Dr. Leana Wan accompanied news that a number of states are shifting their timelines to effectively end mask mandates. 

Dr. Anthony Fauci told the Financial Times that we’re near the end of the “full blown pandemic phase of COVID-19”. NBC said that the “era of big mandates is over”. We’re moving closer and closer to big shifts in public policy around COVID-19, and each alteration will promote a more liberated economy. 

We had a headfake around the reopening of the economy in 2021, but that could soon shift in a direction that is beneficial for many industries – particularly the travel and hospitality sector. 

At a time when companies are working to control inflation, look for lots of mergers, lots of new aims to increase automation, and lots of price hikes that will change their profitability. 

What’s a BUY?

Regardless of what happens tomorrow morning, I’m looking at one specific industry that offers incredible value and momentum potential. 

At a time that a rotation into value is continuing, I still think that insurance companies remain one of the best bargains for the year ahead. Yes, it might be boring… but those can be the most profitable trades in the market.

Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.
Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.

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