Is 'Peak Everything' A Problem?

I think it's also worth pointing out that some of the peaks we're seeing should be considered positives. As in the likely peak level of inflation. And lumber. Oil. Used cars. Housing. And perhaps, bond yields.

As we've been discussing for some time now, the recent rates of ascent in these areas were simply unsustainable. This was due, of course, to the "year-over-year" comparisons from the pandemic-induced economic shutdown. And with the rapid reopening of the economy that ensued, it makes sense that the "peaks" in many areas are likely being seen now.

However, unlike past economic cycles, these "peaks" are more about comparisons to a closed economy, the ultimate rebound, and then the associated problems with that reopening - such as the supply chain issues, shortages, pent-up demand, etc.

My point is that the current peaks are, to a certain degree, artificial. As such, "peak everything" doesn't suggest an actual slowdown in economic activity or earnings, but rather the mathematic reality of the current cycle.

From my perch, the key going forward will be the rate of growth the economy experiences and, in turn, corporate profits. As long as the economy can continue growing at a healthy clip (as in, higher than pre-pandemic levels), then the current "peaks" aren't likely to be a threat to the stock market. However, given the current state of valuations, which many will argue have already priced in a healthy amount of growth, should growth disappoint (or inflation continue to surprise to the upside for longer than Powell & Company expect), then the bears could certainly take control of the game.

So for now, my plan is to pay particularly close attention to the upcoming economic data and to listen to the "forward guidance" companies provide on their earnings calls. Another way to think about this is the game will be about the "new normal" growth rates. In short, my thinking is the outlook for the future is a lot more important than the idea of "peak everything."

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The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should ...

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