A lot of focus this morning will be on the inflation data…when the CPI number (Consumer Price Index) comes out at 8:30. There are some people who believe we’ll get some relief this month…for reasons like the fact that oil prices fell sharply in November. I don’t know about you, but I don’t think consumers got a whole lot of relief from that development. When I filled up my gas tank last weekend, it was still paying pretty much the same as I did at Halloween.
In other words, if you buy gas…or go grocery shopping…or car shopping…or pay rent…etc…..there don’t seem to be a lot of reasons to think that consumer prices are getting any near-term relief. As for future relief, there is a good chance that inflation will calm down a little bit from its 2021 peak, but we still believe it will plateau at a much higher level than we’ve seen in several decades.
All you have to do is look at the anecdotal evidence. Sure, the line of boats outside the LA and Long Beach ports has shrunk…but it turns out this is only due to the fact that many boats have moved further out to sea. (The line is actually growing…not shrinking!) Here in Boston, they have to cut-back some of the bus schedules because they don’t have enough drivers. In other words, wages are going to have to rise if people are going to be willing to take the millions of jobs openings that exist today.
Of course, these are just anecdotal examples that tell us that inflation is going to remain high, but the real question is whether a weaker number today will lead the Fed to pullback on their recent big change to a more hawkish stance on their upcoming tightening cycle (which has actually already begun). We think not…..The Fed does not make a significant (and public) change in policy like the one Chairman Powell confirmed last week…if they’re going to reverse a week later based on one data point (which can be gamed anyway). With the Fed in the “quiet period,” we won’t know for sure until next week’s announcement and press conference, but we don’t see a big about-face from them.
This does not mean that the markets won’t react in a meaningful way to a weak inflation number this morning. However, we will say that with the S&P 500 less than 1% from its all-time highs, the stock market is has definitely not pricing-in a stronger-than-expected CPI number right now. In other words, we could see a big pick-up in volatility if the CPI number surprises to the upside today.
Switching gears, we want to focus on the chart of Tesla (TSLA) this morning. In our opinion, the stock of this company is the poster boy for stocks that have risen far beyond anything they can achieve fundamentally over the next several years. This does not mean that they are bad companies…or that their long-term prospects are not good. In fact, for many of them, their long-term prospects are excellent. However, due to the massive levels of emergency liquidity that has been sloshing around in the system, some of these stocks have risen far beyond what even their excellent prospects would justify.
Therefore, as this liquidity becomes much less plentiful…and eventually disappears, it’s going to be very hard for these stocks to remain as elevated as they have this year. Many of them have already started to pullback. In the case of TSLA, it has fallen over 18%. The $1,000 level is a VERY important support level for TSLA. It’s much more than a big round number. It’s also where the 50-DMA comes-in (which has provided excellent support for the stock over the past six months)…and a drop below that level would also give it its first “lower-low” since last spring (and take it below a “descending triangle” pattern).
With this in mind, we’ll be watching this stock today…and in the days ahead. If it breaks below this very important support level, it will likely signal that this stock is starting to reprice itself to the realities of the Fed’s new monetary policy. That, in turn, would likely be followed by similar “repricing” moves by many other highflying stocks as well.
Matthew J. Maley
Chief Market Strategist
Miller Tabak + Co., LLC
Founder, The Maley Report
275 Grove St. Suite 2-400
Newton, MA 02466
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