A drop in inflation towards 2% is "the catalyst" for macro and equities as it should drive significant drop in equity and bond volatility. 18 of 19 times, stocks higher

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The key catalyst is a drop in inflation towards 2%....

This past week, one of my long-time clients (and friend) acknowledges stocks have fallen so much in 2022 that a turn eventually happens, but asked:

"What will get retail investors to buy stocks again?" Most investors will say the catalyst is when "earnings bottom." We disagreeWe believe "the catalyst" is when inflation is convincingly headed towards 2% The high level of inflation is what drove the Fed and other central banks to full "hawk" mode. And while some might say wage inflation is the new goalpost, that is overlooking that the key is inflation convincingly heading towards 2%.The Fed said it wanted to see consistent progress, which they once termed as three months of progress. Thus, a metric is when 3-month annualized core CPI and core PCE fall to 2.5% or so. The last two months of Core CPI are below 0.20%, so only one more month of below 0.2% and 3M annualized will be there.Based on our forecasts, we expect Core CPI to be ~2% (3M annualized) by Dec 2022 (released 1/12/23) and Core PCE inflation by Dec 2022 as well. Core PCE for Nov/Dec PCE is 12/23 and 1/27, respectively. Yes, we believe 3M ann...

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