- Oil and the stock market can move higher together.
- Inflation will rise a little over the next few months. But it won’t be enough to hurt stocks.
- Consumer Confidence increased in April. Neither bullish nor bearish for the stock market.
Read Study: death crosses aren’t bearish for the stock market
1 am: Oil and the stock market can move higher together
Investors have been talking about the recent rally in oil. Some see it as a bearish factor for stocks because “rising energy prices = rising costs for companies”. History proves otherwise.
Massive medium-long term oil rallies tend to coincide with stock market rallies.
Rising oil is not consistently bearish for stocks unless we get stagflation. In fact, rising oil is more often bullish than bearish for stocks because it means that economic demand is growing, which boosts oil AND the stock market. There have been no signs of stagflation so far.
1 am: Inflation will rise a little over the next few months. But it won’t be enough to hurt stocks.
I said yesterday that there are no signs of stagflation right now. Inflation will probably rise a little bit over the next few months.
The input prices of manufactured products have increased. This is partially due to rising energy (e.g. oil) and commodities (raw material) prices, which are pushing inflation higher.
As you can probably guess, companies pass on rising costs to consumers, which pushes inflation higher.
This is why inflation is headed higher throughout 2018. But remember when I said yesterday that oil is the true driving factor behind rising inflation. The more oil prices rise, the more oil production will surge, which will put a cap on oil prices.
This implies that although inflation will rise in 2018, it will rise slowly. There will be no stagflation. Inflation doesn’t hurt the stock market – stagflation does (i.e. economic deterioration).
1 am: Consumer Confidence increased in April. Neither bullish nor bearish for the stock market.
The latest reading of Consumer Confidence went up, from 126.1 to 128.7. But this isn’t a medium-long term bullish or bearish sign for the stock market right now.
You can see in this zoomed-out chart that Consumer Confidence is not a leading indicator for the economy or stock market. It’s a coincident indicator. Consumer Confidence and the economy/stock market peak at the same time.
Read Stocks on April 25, 2018: outlook
Here’s what I think will happen based on my discretionary outlook.
- The S&P has made a 6%+ “small correction”. This will not turn into a “significant correction”.
- 2018 will trend higher but also be a choppy year. There will be another correction later this year.
- Why I’m medium-long term bullish on the stock market from a discretionary point of view.
- The S&P 500 has approximately 1-2 years left in this bull market.
I do not use my discretionary outlook to place entry/exit trades. I am 100% long SSO (2x S&P 500 ETF) because my Medium-Long Term model does not foresee a significant correction at this point in time. I ignore small corrections. I only sidestep significant corrections and bear markets. So please take my short term thoughts with a grain of salt.
I have been long the S&P 500 since September 7, 2017 when it was at 2465.
*I also have a small Day Trading portfolio. Click here to view my day trades.