Tanking Inflation Drives Markets Higher Array ( [cookie] => aa2dd6-fdbafc-3bddb0-80087d-01edf3 [current_usage] => 2 [max_usage] => 2 [current_usage_crypto] => 2 [max_usage_crypto] => 2 [lock] => 1 [message] => [error] => [active_member] => 0 [subscriber] => 0 [role] => [visitor_id] => 170351 [user_id] => [reason] => [method] => ) 1 and can accesss

“From one thing, know ten thousand things.” ~Miyamoto Musashi

Good evening:

With this week’s rally, the S&P 500 has completed 77% of the retracement of its entire bear-market decline from 4,819 (January 4, 2022) to 3,491 (October 13, 2022). It also recorded its highest close since April 2022. 

This was no surprise to Fundstrat Head of Research Tom Lee.

On Sunday evening, Lee made a rare tactical call on the S&P 500, predicting that the index could rise 100 points or more this week. Much of that call was based on his expectation for the June Core CPI coming in softer than consensus – and it did, +0.16% vs. consensus expectations of +0.30%. “This was a big downside break and the lowest reading since February 2021,” Lee remarked after the official release.

For months, Lee has been pointing out that some CPI components, particularly shelter and used cars, lag what is shown in real-time data. He has argued that when – not if – those components eventually caught up, CPI would start to tank. “And there’s almost no inflation outside of shelter and used cars,” Lee noted.

That’s what is beginning to happen, as shown in our Chart of the Week: