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Investing is a game that is incredibly complicated and can never be truly mastered or perfected. We have seen this range-bound market coming for six months, and even before that, we saw inflation on the rise in the post-pandemic period. So, what’s next? That’s always the question. It’s not obvious yet. We are still seeing the impact of the pandemic and the shutdowns. Everyone wanted TVs and furniture. Companies like Target (TGT) and Walmart (WMT) ordered tons to be delivered. Everyone has moved on. (Although, my daughter is still waiting of a couch and TV stand months after she moved in.) People want clothes and travel now. What’s next? A hangover probably. A debt hangover. For now, the consumer is saying in polls that the economy stinks, but I think they mean inflation stinks.
Inflation is a battle that may go on for a decade or more. Oil companies refuse to drill to create more supply, and green politicians in Washington refuse to acquiesce to less-stringent regulations of energy companies in order to generate more supply. It used to be said that the cure for high oil prices was high oil prices. Oil companies would enact larger projects to get more oil out of the ground due to high prices. Not anymore. They have learned their lesson. The CEO of Chevron (CVX) this week told the CNBC audience that he felt that a new refinery will never be built again in this country. That will not help contain inflation, and we need to invest our portfolios accordingly. To get inflation under control, we need to get the price of oil lower. The results of the mid-term elections will do nothing to increase supply of oil. A resolution in the Ukraine would. That would help the economy more than anything that the Fed can do. The Fed will keep raising rates until something breaks in the bond market. We are already getting close.
This may be one of the most important weeks of the year. The Fed meets this week, and June 17th is a big date on the calendar as the June options expiration will be massive. It will reset the market. That unlocks the market in either direction. The market has little to no liquidity, and that will only get worse as the summer drags on. Markets could have large moves in either direction. The action after Labor Day will have more meaning than it does now. We closed Friday at 3900 on the S&P 500 and 1800 on the Russell 2000. Round numbers means the computers and options markets are in charge.
It seems strange to think we could find the bottom so quickly, but things are moving faster. A recession could be called by the end of this month. The lower we close on Friday, the more likely we bounce. The higher we close on Friday, the more likely the selling isn’t over. It’s time to think about what comes next and where to profit. Things are moving quickly – perhaps the low end of the 18-month range comes this week. We are prepared and hope that the markets make it obvious.
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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