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"Blame Inflation" Headlines Try to Explain the Stock Market Selloff

No matter what the market does, writers try to explain it, nearly always incorrectly.
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US Treasury Yileds 2021-04-11

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

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

QQQ 2021-05-11

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

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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

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

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