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February 20, 2024

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The “data dependent” Fed faces a new challenge.  

The S&P 500 stock price index (symbol: $SPX, 5,005.57) fell 0.42% last week as new data cast doubt on economic prospects and the trend toward moderation of inflation.

Both the Consumer Price Index (CPI) and the Producer Price Index for final demand (PPI) rose and were higher than economists expected. Barron’s said Federal Reserve interest rate cuts are less likely and a resumption of rate increases could even be in play. The New York Times noted a growing concern on Wall Street about inflation.  

US Treasury Secretary Janet Yellen reassured the public: " I think most Americans are beginning to feel better about the economy…. The trend here is that inflation is moving decisively down…. Most importantly, wages have gone up. And they've gone up quite a lot. They've gone up especially large amounts for lower-income workers."

Secretary Yellen failed to mention that when wages go up “quite a lot”, that adds to inflation. Also, the actual chart of the CPI clearly shows that inflation is not “moving decisively down.” As a political appointee, the Treasury Secretary can be expected to spin the narrative in ways that serve the interests of the Biden Administration, which wants us to believe that inflation is going down and the economy is strong.

Count on inflation continuing to erode the purchasing power of the dollar. The CPI now is more than 14 times higher than it was 77 years ago in 1947. The Compound Average Annual Growth Rate (CAGR) of the CPI is 3.53% per year over the 77 years. At that rate, the cost of living doubles every 20 years. CAGR has accelerated to 4.58% over the past 4 years, a rate that doubles the price level in less than 16 years. Beyond all the talk about containing inflation, fiscal policy, monetary policy, and the actual history of the data all point to continuing high inflation for the long term.

Retail Sales 12-month growth rate fell in January. For the past 4 months, sales have been weaker than economists expected. Retail Sales is a Coincident Economic Indicator.  

Our Colby Economic Expectations Index turned down last week, indicating actual data releases fell short of the consensus of economists’ forecasts. Previously, from 11/17/2023 to 2/12/2024, the index rose sharply, indicating actual data releases were stronger than the consensus of economists’ forecasts.

The path forward from here is highly uncertain. The major risks to the financial system and global economy that we have been highlighting in these reports have not suddenly gone away.

Stock prices have made little net progress over the past 2 years, as the S&P 500 stock price index is only 4% above its high of January 2022.

We offer you an objective discipline that affords a rational perspective on the most relevant facts, so that you can conserve and grow your wealth without being whipsawed by the ever-changing news of the day. Every day, we weigh all of the potential Reward/Risk probabilities of trend continuation or reversal. We work to control risks and to make sure that all of our clients are safe and protected from large losses.

Summary of Current Issues Impacting the Financial Markets

  • Stock market indicators are showing divergences and loss of upside momentum.
  • Stock market indexes heavily weighted by technology stocks have been strong since October but many technical indicators are lagging significantly.
  • Stocks remain overbought and overvalued after the price run-up since October.
  • Sentiment indicators show bullish complacency and greed. The CNN Fear and Greed Index indicates Extreme Greed, which is a contrarian sell signal.
  • Overall risk (including war risk, which is the worst kind) remains high.
  • Prices of fixed-income notes and bonds reached extremely overbought levels in December but more recently have turned weak with bearish divergences....

See The Colby Global Markets Report (click herefor our complete analysis of global markets and specific investment rankings.

Every day, we use technical, fundamental, and quantitative analysis to judge the Reward/Risk probabilities of trend continuation or reversal. We strive to control risks and to make sure that all of our clients are safe and protected from large losses. If you want to earn reasonable returns while avoiding large losses, move your wealth to our professional fiduciary asset management. We always put our clients’ best interests first, and we are always here to help you in times of stress.

We are always happy to discuss your goals and concerns and answer all your questions.
Call us now for a free consultation.
Please contact
Bill Anderson
by phone: 646-652-6879
or by email: anderson@colbyassetmanagement.com


Robert W. Colby Can Manage Your Account

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11-Year Outperformance by the
Top 10 Exchange Traded Funds
Weekly Rankings of Major Trend Relative Strength

My weekly Top 10 ETFs ranked by the Major Trend Relative Strength outperformed the S&P 500 by over an 11-year period of real-time weekly tests. Click here for a graph of simulated performance.
Please note that my ETF rankings are available by subscription--NOW WITH A NO-RISK FREE TRIAL.
See The Colby Global Markets Report (click here).

My latest book was named one of the top investment books by Stock Trader's Almanac 2005. This book also received an excellent review in the November 2003 issue of Futures.

My ETF Rankings are not investment advice. Rather, they are an objective ongoing research study.

Analysis of market forces may offer a sense of probabilities. But the many variables that can impact market prices are notoriously difficult to predict. And, market analysis is something less than an exact science. So, sound trading tactics are always recommended. See my
Money Management Rules.

According to CFTC Rule 4.41, hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown.

Trading and investing involve risk of significant loss. Your use of this site means that you have read, understood, and accepted my
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Robert W. Colby, CMT,
is a consultant to institutional and private investors and traders, providing regular analytical reports, custom research services, and trading systems tailored to clients' objectives. Clients include the most successful traders and investors in the world. Robert is the author of The Encyclopedia of Technical Market Indicators, Second Edition, McGraw-Hill, 2003, which has become the standard reference for indicator and trading systems design. Previously, at several large Wall Street firms, Robert worked as a proprietary trader, technical analyst, and fundamental analyst. He also was adjunct professor at New York University and New York Institute of Finance, where he developed new courses on technical analysis and market timing.

Robert W. Colby is a Chartered Market Technician (CMT), an accreditation granted to members by the CMT Association (https://cmtassociation.org/) after demonstrating professional competence and ethics over a period of many years. Robert has been a member since 1980, and he strongly supports the CMT Association's high standards. He also supports the The Technical Analysis Educational Foundation (https://www.taeducation.org/about/), which works to have technical analysis included in the curriculum of major business schools. "The CMT Association is the national organization of investment analysts, stock market analysis professionals, and certified market technicians in the United States."

Robert W. Colby is America's foremost authority on testing market indicators."
--Bill Meridian, top-ranked investment analyst and international fund manager, www.billmeridian.com

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Ranking ETFs
"Robert Colby has evolved a system that, while hardly foolproof, is pretty clever," wrote Daniel Fisher, "Surfin' ETFs", Forbes, Investment Guide, Special Issue, June 4, 2007.
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INTERVIEW of Robert W. Colby in Technical Analysis of STOCKS & COMMODITIES magazine, December 2006 issue.
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"Gold's next move: History, logic, and intermarket relationships. See if testing gold's relationship to different markets over a 32-year period provides possible trade signals for the yellow metal."
by Robert W. Colby, CMT.
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"Which gold indicators are best? Divining gold's next move."
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"Applying the Relative Strength strategy to ETFs."
by Robert W. Colby, CMT.
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"PUTTING CANDLES TO THE TEST, How Profitable Are They Really?" by Robert W. Colby, CMT. Published in SFO, STOCKS, FUTURES AND OPTIONS MAGAZINE, Volume 5. No. 8. August 2006, pages 91-94. Please click here to buy this article. (Scroll to bottom of linked page.)

TradingMarkets.com interviewed
Robert W. Colby, CMT.
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Active Trader magazine September 2004 interviewed Robert W. Colby. 4 pages. "Robert W. Colby: Technical collector. A discussion with Robert W. Colby about technical trading and his revised Encyclopedia of Technical Market Indicators, Second Edition. By Active Trader Staff."

For information about
methods that would have performed substantially better than systematic trend-following in back-testing simulation dating back 32 years, email me by clicking on the following link:
Please click here to contact Colby directly.

Click here for a simulated performance graph of one of my trading systems applied to a stock price index.

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