“Blame Inflation” Headlines Try to Explain the Stock Market Selloff

Inflation Scare?!

The Dow is down about 550 points as of 1:30 PM central. The S&P 500 is down about 45 points. 

Headlines

• Reuters: Wall Street slips as inflation jitters spark broad sell-off
• Reuters: Inflation fears push S&P 500 to one-month low
• Wall Street Journal: Stocks Extend Fall, Dow Drops More Than 500 Points, Streetwise: If Inflation Is Coming, Here’s What to Do About It

US Treasury Yields

If there was an inflation scare, yields would be soaring, or at least should be soaring.

Yields generally peaked mid-March.

Nasdaq

The Nasdaq peaked mid-April. 

Today’s Reaction

So what spooked the market today?

Who knows? I don’t and no one else does either, 

There might not be a reason or someone might figure it out months from now. 

One day or even a few weeks might be random noise.

Valuation Scare

Absurd valuations in and of themselves are a valid reason for a selloff. 

If stocks do turn seriously down here, most likely it will be a valuation scare, not an inflation scare that does the trick.

Majority View

• Mohamed El-Erian says inflation is here to stay and won’t be ‘transitory’ like the Fed claims
• Jamie Dimon on Booming Economy
• All Inflation Is Transitory. The Fed Will Be Late Again
• Real Money says Inflation Is Not Transitory
• Peter Schiff says The Fed Can’t Tell The Truth About Inflation

Rear View Mirror

A few of us believe inflation is mostly in the rear view  mirror. 

On May 7, I commented, Add David Rosenberg to List of Those Who Believe Inflation is Transitory

Let’s discuss Bob Farrell’s classic market rule: “When all the experts and forecasts agree, something else is going to happen.”

Who Else Is in the Transitory Camp?

There are not many of us, but Lacy Hunt at Hoisington Management is in the small group.

On April 9, I commented Expect Inflation to Accelerate? Here’s 8 Reasons to Expect Decelerating Inflation

In that post I quoted Lacy Hunt at Hoisington Management as follows.

“Contrary to the conventional wisdom, disinflation is more likely than accelerating inflation. Since prices deflated in the second quarter of 2020, the annual inflation rate will move transitorily higher. Once these base effects are exhausted, cyclical, structural, and monetary considerations suggest that the inflation rate will moderate lower by year end and will undershoot the Fed Reserve’s target of 2%. The inflationary psychosis that has gripped the bond market will fade away in the face of such persistent disinflation.”

The inflation debate aside, headline explanations for what the stock market does on a day today basis are generally to be laughed not believed.

With bond yields barely moving having peaked mid-March, writers are making up headlines to match what they believe.

For today’s selloff, either no reason at all or valuations better fit the story.

Mish