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The Stock Market Gives Additional Confirmation

CAMS Weekly View from the Corner – Week ending 9/16/2022

September 19, 2022

This past week a story was shared with me relative to a project for sprucing up a multiple door garage with a focus on the doors themselves. They added they were also thinking of adding a door to part of the building that currently is described as an open bay. In addition, adding to specifics, there was some contemplation on including electronic openers on each bay being the current setup offers only partial access via electronic door openers. In the process of their consumer research the various costs for various options were being shared with an overall tone of “that’s expensive” and with this an attempt to discuss with the company various options to obviously reduce the price. As the story went the company representative obviously felt the price reduction goal and simply shared “…..everything is high….all of it – the nuts the bolts the metal tracking the glass or no glass option as well as the insulated or non-insulted door including the wiring for the new door option all the way down to the remote control options themselves.” The obvious stand-out phrase in the shared story is the front-line supplier’s statement that “everything is high” – hold the thought. Federal Reserve Bank of Cleveland Last Tuesday the Bureau of Labor Statistics (BLS) released their monthly price inflation data for the month of August. On the surface it appeared nothing had changed which can be viewed in a positive and/or negative sense. That is, we did not continue to set new multi-decade high price inflation results and at the same time there was no reduction in trend. That is on the surface. Below surface there was a notable issue. The Federal Reserve Bank of Cleveland is the Fourth District bank within the Twelve District Federal Reserve System. They have a long-standing take on price inflation via their two measures known as Median CPI and also their 16 percent trimmed-mean CPI. These measures are meant to provide a better signal of the overall price inflation story as they both are designed to go deeper inside the price inflation backdrop than the more surface oriented Consumer Price Index (CPI.) Think if the CPI represents opening the hood of the car and doing a general inspection of the engine the Cleveland Fed’s measures represent the mechanic offering “…we better hook it up to the diagnostics machine..” With this the diagnostics reported troubling news and thereby underlined, yet again, that the Federal Reserve Open Market Committee (FOMC) who sets interest rate policy remains terribly behind the price inflation curve.

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To share a visual of the storyline we offer the above chart from the Cleveland Fed. The four lines represent two of the Cleveland Fed’s measures along with the traditional BLS price inflation measures. We added the red arrows to point out the traditional measures which depict our aforementioned description that nothing has changed. Inside the red box are the two measures from the Cleveland Fed. We can clearly see they have set yet another year-over-year high on a trend basis. With this, little has changed in that we are continuing to see, when taking a deeper look into the price inflation storyline that ever higher trending price inflation continues on. Stock Market Gets another Dose of Reality With the above price inflation data the stock market took the data release hard with a tremendous down day on Tuesday. As the week continued on it was not able to regain its footing. As the mainstream seemed to be focused on the traditional measures of price inflation we felt, if we could speak for collective market participants, their focus was on the data shared above – the diagnostics that is – if you will. This underlines the same theme we have been sharing for well over a year now which is the Federal Reserve is terribly behind the price inflation curve and their previous view of “transitory” price inflation would prove to be silly talk. Touching back to our outset story; the company representative was speaking relative to her industry and yet, per the above Cleveland Fed data, she was remarkably accurate in describing the overall pricing storyline across the economic system – “everything is high” – is exactly what the Cleveland Fed data is sharing with us as well. Expect more interest rate increases from the Federal Reserve as they continue to attempt to play catch-up on the price inflation front. For the stock market at large we continue to offer a true bear market began back in January and if plays out like historical bear markets expect a long stretch of challenging markets. For our part we continue to execute from our playbook for true bear markets as this week underlined, yet again, the need to do so. I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis


H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP). This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”. A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.

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