Outlook For Stocks - Wednesday, June 13

Thoughts

1. Inflation is moderate. The “inflation will kill stocks” argument is wrong. No stagflation.
2. FANG insiders are selling a lot of their own stocks. Not necessarily bearish.
3. The Fed will hike rates today. A very small short-term bearish sign for the stock market.

1 am: Inflation is moderate. The “inflation will kill stocks” argument is wrong. No stagflation.

The latest CPI reading demonstrates that year-over-year inflation is 2.7%. There is no “surging inflation”. Putting things into perspective demonstrates that inflation is moderate.

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The bears who argue that “stagflation” will kill the stock market are clearly wrong.

1. Inflation hasn’t surged. There is no “stagflation” without surging inflation.
2. Economic growth is strong. The Atlanta Fed estimates Q2 2018 GDP growth will be a strong 4.6%. There has been no significant slowdown in economic growth.

1 am: FANG insiders are selling a lot of their own stocks. Not necessarily bearish.

Bloomberg states that FANG insiders (Facebook, Amazon, Netflix, Google) are on track to sell more than $5 billion of stocks for the first half of 2018. While this sounds bearish, it isn’t. Look at the following chart.

As you can see, FANG insiders have been selling since 2016. The stock market has soared since then, which suggests that insiders aren’t better at timing the market than the average Joe.

In addition, perspective matters. FANG has a market cap of $2.474 trillion as of June 12, 2018. $5 billion in insider selling is a drop in the bucket.

1 am: The Fed will hike rates today. A very small short term bearish sign for the stock market.

The Fed is expected to hike interest rates today. Remember this study from before: the stock market tends to fall a little in the 1-2 weeks after a rate hike.

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This is while the S&P 500 is exactly at its resistance level.

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Other recent studies (here and here) suggested that the stock market’s 1-2 week forward returns will be bullish. On balance, I think the most likely path is that the S&P consolidates sideways at this resistance level for 1-2 weeks before trending higher.

Outlook

Here’s what I think will happen based on my discretionary outlook.

1. 2018 will trend higher but will also be a choppy year.
2. The S&P 500 has approximately 1-2 years left in this bull market.