Just Like a Hyperactive Toddler

Many parents have experienced the mysterious energy that keeps some toddlers on their feet and running around all over the place, instead of lying down and having a much-needed nap with daddy. Of course, it is usually daddy that really feels like a nap, but that’s beside the point. The adult knows that if the hyperactive child does not rest, the odds of a major “meltdown” later in the day will increase exponentially, and everyone in the house will suffer. The market is starting to behave an awful lot like the hyperactive, diapered, bundle-of-joy.

The fact that we are in a bull market has been well documented by us for some time now, but so has the idea that a healthy bull market requires some rest periods in order to stay healthy. We have not seen a 5% correction since the summer of 2016. Like our proverbial toddler, if we don’t get a rest period soon, there will be tears later. We continue to expect a correction.

As far as fundamental data is concerned, the Fed’s favorite inflation gauge, the personal consumption expenditure (PCE) continues to read “lowflation” with a drop to 1.3% in August.

The Fed is looking past these low inflation reads, but if over the next couple of months, the PCE rate does not at least stabilize, then “one more rate increase this year” may not materialize. This is particularly so, since wage increases were 0% compared to July. The Fed will have to depend on its balance sheet normalization to encourage bond rates higher. Briefing.com’s summary of the numbers is printed below.

CategoryAUGJULJUNMAYAPRPersonal Income

Total Income0.2%0.3%0.0%0.3%0.1% Wage and Salary0.0%0.5%0.4%0.1%0.6%Disposable Income0.1%0.2%0.0%0.4%0.2%Savings Rate3.6%3.6%3.7%3.9%3.7%Personal Consumption

Total (Nominal)0.1%0.3%0.1%0.2%0.3%Total (Real, Chain $)-0.1%0.2%0.1%0.3%0.1%Core PCE Deflator

Month/Month0.1%0.1%0.1%0.1%0.2%Year/Year1.3%1.4%1.5%1.5%1.6%

Equities

The AAII independent investor survey shifted 6.8% from bullish to neutral and bearish. Bullish sentiment now stands at 33.3%, while neutral sentiment is 37.9%, and bearish sentiment 28.7%.