Market Trends and Secular Outlook

Short-Term Price Wave Trend bearish

Intermediate-Term Price Golden Cross Trendbearish

Momentum Wave Trendbearish

Volume Wave Trendbearish

Volatility Wave Trendbearish

Wave Trend is measured by the Elliott Wave Oscillator. See details

Secular Outlook

Deflation

The chart below shows the degree of Non-Financial Corporate Debt to GDP and Baa Corporate Bond Yield. As you can see up until around 2012, there was a relationship between the two. Then corporate debt took off while yields have kept declining. Ordinarily, this would give off an impression of being a profoundly strange circumstance and likely unsustainable. The undeniable instance of Japan comes into view where rates and bond yields fell during the 1990s, joined by the start of private debt deflation. A comparative circumstance could be growing now with U.S. Debt. Another reason it is currently an ideal time to deflate.

Disinflation

Last Thursday’s arrival of the Core Personal Consumption Expenditures Price Index (PCE) for August indicated a year-on-year pace of progress at 1.6%. Given this proof of higher prices, one may believe the Fed keeping loan fees unaltered for the following three years may begin to change. However, both the 3-month Eurodollar futures and the 2-year Treasury yield were unchanged as the snooze-fest in the front end of the yield curve continues. Keep an eye on Core PCE by all means, but don’t expect the Fed to do anything on rates until well after short-end market interest rates have moved significantly higher.

Income & Spending

August nominal personal income growth declined by 2.7%. Real disposable personal income fell 3.5%. The decrease in income was largely due to the end of the $600/week supplemental unemployment insurance benefits.

Personal spending rose 0.8%.

Source: ZeroHedge

Savings

Here is the problem: lower-income coupled higher spending in a time when the vast majority of Americans were looking forward to more stimulus meant that US consumers rapidly burned through savings. As per the BEA, in August, the measure of annualized savings amount tumbled by $723 billion to $2.435 trillion, the lowest since March and far below the $6.4 trillion peaks in annualized personal savings hit in April.

Source: ZeroHedge

Simultaneously, the personal savings rate crumbled by 17.7% to 14.1%: this implies an astounding 60% of the personal savings built up in the aftermath of the COVID fiscal stimulus tide has now been spent.

Source: ZeroHedge

Conclusion

The charts above reflect deflationary headwinds and thus increased downward pressure lies ahead for prices.

As the following chart reflects, inflation below 1% is bearish for P/Es and thus stock prices.

Source: Crestmont Research